MG:CC - Auto suppliers dealers see estimates cut by Morgan Stanley ahead of earnings season

Morgan Stanley slashed estimates across the automobile industry to adjust for slowing growth and credit headwinds.

The top line estimate cuts of 5% to 10% across its coverage and EBITDA cuts in the order of 5% to +15% place the MS forecasts below the consensus expectations ahead of the earnings season. However, the forecasted auto sector downturn is more mild than what has seen by automobile industry players in past recessions.

The serious fight by the Federal Reserve to tame inflation is said to impact the auto value chain in a highly uneven way, driving mean reversion down for auto dealer GPUs, auto credit and used car prices, while potentially driving mean reversion down for raw material input prices at suppliers and potentially production unit volume and inventory up. Meanwhile, the rental car market is said to be in the latter stages of a post-COVID economic boom. But that mean-reversion for RPD and fleet costs suggests at least 50% to 60% EPS downside for the rental names, warns analyst Adam Jonas and team.

Price target cuts: Aptiv ( NYSE: APTV ) to $149 from $155, Lear Corporation ( LEA ) to $139 from $144, Magna International ( MGA ) to $79 from $84, Visteon ( VC ) to $91 from $93, Asbury Automotive ( ABG ) to $130 from $152, AutoNation ( AN ) to $104 from $107, Avis Budget ( CAR ) to $140 from $156, Carmax ( KMX ) to $124 from $140, Group 1 Automotive ( GPI ) to $142 from $160, Hertz Global ( HTZ ) to $16 from $23, Lithia Motors ( LAD ) to $220 from $260, and Penske Automotive Group ( PAG ) to $93 from $95.

Auto names that Morgan Stanley kept slotted at Outperform included Freyr Battery ( FREY ), Rivian Automotive ( RIVN ), Aptiv ( APTV ), Fisker ( FSR ), Tesla ( TSLA ), Ferrari ( RACE ), CarMax ( KMX ), and Magna International ( MGA ). The firm has Underweight ratings on Adient ( ADNT ), Avis Budget ( CAR ), Sonic Automotive ( SAH ), BorgWarner ( BWA ), Group 1 Automotive ( GPI ), and Asbury Automotive Group( ABG ).

Quant check: AutoNation ( AN ) is the auto retail stock with the highest Seeking Alpha Quant Rating, while Superior Industries ( SUP ) tops the list in the auto parts sector.

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