With debt problems "likely in the past" and automotive manufacturing expected to increase substantially in the coming months, CIBC World Markets doubled its price target for parts manufacturer Linamar Corp. .
"An upward shift in earnings momentum combined with higher earnings revisions could suggest further upside for auto related equities in the near term," analyst Michael Willemse said, as he raised his target to $12 and maintained his "market weight" rating.
Five analysts follow the company's shares, according to Bloomberg, with five holding "buy" ratings, one "hold" and one "sell." Their average price target is $8.90 - just 0.33 per cent higher than Friday's close of $8.87.
According to estimate tracker StarMine, in the last month analysts have revised their earnings per share expectations for the next quarter 33 per cent higher to a 1 cent loss and their outlook for the full year 30 per cent higher to a 2 cent gain. The revisions came after the company posted a 1 cent loss in the last quarter, while analysts had expected a loss of 15 cents.
The company's share price, meanwhile, has increased 143 per cent since Jan. 1, even as General Motors and Chrysler entered bankruptcy protection. Together, the two major auto makers account for about 25 per cent of Linamar's business.
"We are increasing our price target ... due to greater confidence in the recovery in the auto sector; reduced leverage concerns and to account for recent multiple expansion in the peer group," he said.
http://wardsauto.com/ recently estimated North American light vehicle production would increase by 27 per cent in the third quarter over the second quarter - 20 per cent lower than last year's levels. The Big Three - Ford , General Motors, and Chrysler - are expected to increase their production by 54 per cent over the current quarter.
"The higher than expected production could also be related to sentiment at GM that the negative impact of the current bankruptcy restructuring may not be as significant as GM once feared," he said, adding Chrysler's production will increase by 154 per cent as it resumes manufacturing after emerging from Chapter 11 bankruptcy protection."
Linamar paid down $80-million in notes earlier this month, which he said resolved outstanding concerns about the company's liquidity. More importantly, he said, the move kept the company from breaching a key covenant on its $250-million credit facility.
With the available credit, about $82-million cash and free cash flow of about $70-million expected for the rest of the year, he also said the company could find itself shopping for acquisitions. Competitor Metaldyne entered Chapter 11 bankruptcy protection in May, and although some of its assets have been sold there is a chance Linamar could move in and snap up divisions.
"If the acquisition of Metaldyne's assets take a relatively short time to complete, the potential takeover opportunities for Linamar may not be as significant as what would transpire if the acquisition takes a long time to finalize," he said. "Regardless, we expect Linamar to benefit from a large amount of take-over business that resulted from the weak light vehicle production environment in the first half of the year."
Mr. Willemse also bumped his price target on Magna International , to $42 (U.S) from $40, as well as his target for Martinrea International to $4.50 from $4.