By Michael Elkins
Bank of America reinstated coverage of Autoliv (NYSE:ALV) with a Buy rating and $130.00 price target, implying a potential return of 47%. Analysts see the auto supplier reaching c50% EPS growth by FY25E vs. the pre-COVID high of $7.9/share.
They wrote in a note, “Autoliv’s historical performance and value proposition are clear, but the key question for the equity story and valuation is: how much more earnings upside is possible? Compared to its high watermark of $7.9/sh (FY17), we see c50/61% EPS growth by FY25/26E, 70% driven by organic profit growth and 30% by a $1.5bn share buy-back program. While the company’s 12% EBIT margin target seems like a significant step-change vs. an average of 9.5% in 2011-19, we think it is attainable, given that: 1) Veoneer (spun off in 2018) created a margin drag of c2ppts in the years leading up to its spin (2015-17); 2) market share gains should see passive safety unit sales exceed the 2017 level already in 2023E, at a 13% lower level of LV production; and 3) leaning out during a tough period (2020-22) should result in strong positive operating leverage in FY23-25E.”
As part of Autoliv's mid-term plan, the company intends to buy back up to $1.5 billion in shares between 2022-24. As of December 31st, only c8% of this has been executed. Despite Bank of America's more conservative outlook, analysts believe the balance sheet can accommodate a full execution of the buy-back program by the end of 2024.
Shares of ALV are up 1.76% in mid-day trading on Tuesday.