Yahoo Finance Here's Why You Should Retain American Axle (AXL) Stock Now
American Axle & Manufacturing Holdings, Inc.’s AXL latest innovative driveline solution, efforts to diversify its business and collaborations with Inovance and REE Automotive bode well. However, high costs of raw materials, labor and utility could weigh on its near-term prospects.
Let us discuss the factors that highlight the reasons behind retaining the stock for now.
Growth Indicators
American Axle is gaining new businesses with its latest innovative driveline solution, which is expected to support customer demand for advanced technologies, thus leading to greater business diversification and solid growth.
The company supplies driveline systems and other components to various auto giants, including General Motors, Jaguar Land Rover, Ford, Harley-Davidson, Volkswagen, Nissan, Honda, Daimler and Stellantis. Frequent business winds augur well for American Axle’s prospects.
American Axle remains focused on making considerable progress in the electric drive space. Collaborations with Inovance and REE Automotive bode well for American Axle’s prospects and are set to fuel electrification revenues. Important electrification launches — including its high-performance eDrive unit for a premium European OEM, as well as multiple electric powertrain component launches, including one for electric pickup trucks and one for a commercial truck — also offer ample growth opportunities.
American Axle’s efforts to diversify its business, products and customer base are generating impressive results. Optimization of the portfolio via buyouts and divestitures is enhancing American Axle’s portfolio. The acquisition of Metaldyne Performance Group has widened American Axle’s operating scale, customer base and end markets.
Divestment of its U.S. iron casting operations has improved its margin profile. Moreover, the acquisition of Tekfor — completed during the second quarter of 2022 — is anticipated to generate strong synergies, bolster the firm’s electrification portfolio and add to its strategy of high and quick return bolt-on acquisitions.
American Axle’s gross new and incremental business backlog (2023-2025) is estimated at approximately $725 million in future annual sales. The launch cadence of the three-year backlog is expected to be approximately $350 million in 2023, $225 million in 2024 and $150 million in 2025.
Importantly, electrification makes up approximately 40% of AAM's new business backlog versus 35% in the prior backlog (2022-2024). Encouragingly, the company’s 2023 net sales forecast of $5.95-$6.25 billion also implies a year-over-year increase from the $5.8 billion recorded in 2022.
Concerns
American Axle is facing headwinds from high costs of raw materials, labor and utilities. Commodity cost inflation, manufacturing inefficiencies and elevated freight costs due to the current supply chain environment are expected to linger through 2023 and are most likely to hit sales.
The company makes massive investments and capital expenditures to develop technologically advanced products to adapt to the changing dynamics of the auto industry. Escalating research and development (R&D) costs to support new programs and electrification may limit near-term margins.
Zacks Rank & Key Picks
AXL currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Some better-ranked players in the auto space are Geely Automobile Holdings Limited GELYY, BYD Company Limited BYDDY and Wabash National WNC, all of which sport a Zacks Rank #1.
Geely is engaged in automobile manufacturing and related areas. The Zacks Consensus Estimates for GELYY’s 2023 sales and earnings imply year-over-year growth of around 57.5% and 22.82%, respectively.
BYD is engaged in the research, development, manufacture and distribution of automobiles, secondary rechargeable batteries and mobile phone components. The Zacks Consensus Estimate for BYDDY’s 2023 sales call for year-over-year growth of around 209.6%.
Wabash is one of the leading manufacturers of semi-trailers in North America. The Zacks Consensus Estimate for WNC’s 2023 sales and earnings indicate year-over-year growth of 12% and 19.7%, respectively.
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American Axle & Manufacturing Holdings, Inc. (AXL) : Free Stock Analysis Report
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Byd Co., Ltd. (BYDDY) : Free Stock Analysis Report
