Morgan Stanley Upgrades Supplier Visteon As Play On 'Auto 2.0'

Morgan Stanley upgraded auto supplier Visteon (VC) to Overweight from Market Weight, citing the company's first quarter beat and an increase in the market's valuation of high tech auto suppliers.

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RESULTS: Visteon reported "strong" first quarter results, as its net income came in 25% above Morgan Stanley's estimate, wrote Adam Jonas, an analyst at the firm. The auto supplier's gross margin was 16.2%, versus Morgan Stanley's forecast of 15%, he noted. Meanwhile, Jonas raised his 2019 and 2020 EPS estimates for the company by 14% and 18% respectively. At that point, the company's investments in auto infotainment and autonomous driving should start to pay off, the analyst stated.

DELPHI RE-RATING: On May 4, another auto supplier, Delphi (DLPH), announced that it would split itself into two publicly traded companies, with one focusing on high-tech products for automobiles and one focusing on powertrain propulsion products. Jonas noted that Delphi's stock has surged since the announcement, saying that the Delphi news "has focused investor attention" on the value of companies best positioned for the migration to the next generation of automobiles, or what he call "Auto 2.0." Jonas responded by increasing his valuation of Visteon's stock by $8 per share, setting a new $115 price target on Visteon.

PRICE ACTION: In morning trading, Visteon rose 3% to $104.88.


Disclosure: None.


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