Analysts bearish on truck suppliers in wake of Brexit Analysts at Piper Jaffray and Goldman Sachs downgraded several names in the trucking sector today based on the negative ramifications of Brexit, with both cutting their ratings on Wabco.
TWO DOWNGRADES FOR WABCO: Piper Jaffray analyst Alexander Potter cut his rating on truck parts supplier Wabco (WBC) to Neutral from Overweight, citing his estimate that the company has 55% exposure to Europe. Given the uncertainty in Europe in the wake of Brexit, it's difficult to formulate long-term estimates for the company, he stated. With investors looking to minimize their exposure to Europe in coming months, they will probably shun Wabco, he believes. The analyst slashed his price target on the shares to $94 from $124. Also downgrading Wabco was Goldman Sachs' Steve Song, who also cited rising European risks. Goldman economists now warn that the U.K. could suffer "a mild recession" next year, and they predict that the euro zone's GDP will increase less than 1.3% annually for the next two years, Song reported. Estimating that Wabco obtains 60% of its revenue from Europe, he lowered his 2017 EPS estimate for the company by 6%. He reduced his price target on the shares to $95 from $105.
OTHER TRUCK DOWNGRADES: Piper's Potter also downgraded Navistar (NAV) to Neutral from Buy. The company is facing increased cyclical risks, as Brexit will probably hurt the U.S. truck market, which was already contracting before the U.K.'s referendum, Potter wrote. Moreover, Navistar's share gains have been slower than expected and it is highly leveraged, stated the analyst, who lowered his price target on the name to $11.50 from $14. Potter cut his rating on Meritor (MTOR) to Underweight, the firm's equivalent of a sell rating, from Neutral. Noting that the company obtains about 20% of its revenue from Europe, the analyst says that "uncertainty" on that continent and a "risk-off" attitude among investors will probably result in Meritor being put in the doghouse by the Street. The truck parts maker's 75% debt to capital ratio is another factor that will reduce its attractiveness to investors in the current environment, according to Potter. Additionally, the analyst believes that Brexit-driven uncertainty could spread to U.S. truck buyers, hurting the company's sales in America. He trimmed his price target on the shares to $6 from $6.50.
PRICE ACTION: In early trading, WABCO fell 4.7% to $85.65, Meritor dropped nearly 4% to $6.85 and Navistar rose about 1% to $11 per share.
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