Dana Incorporated’s SWOT analysis: stock shifts gears amid off-highway sale

Dana Incorporated, a leading provider of drivetrain, sealing, and thermal-management technologies for vehicles, with a market capitalization of $2.51 billion, is navigating a significant strategic shift that has caught the attention of investors and analysts alike. The company’s decision to sell its Off-Highway (OH) division and implement substantial cost-cutting measures has led to a reevaluation of its market position and future prospects. According to InvestingPro data, Dana has shown strong momentum with a 37.7% price return over the past six months.

Strategic Pivot: Off-Highway Division Sale

The most notable development for Dana is the ongoing process to sell its Off-Highway division. Analysts expect an announcement regarding this sale early in the second quarter of 2025. The gross proceeds from the sale are anticipated to be $2.7 billion, with cash proceeds slightly lower at $2.4 billion. This strategic move is seen as a catalyst for unlocking value and improving the company’s financial position.

The sale process has garnered significant interest from multiple strategic buyers, indicating strong demand for Dana’s OH assets. Importantly, current market weakness in the OH sector does not appear to be affecting the valuation of the sale, suggesting confidence in the division’s long-term value.

Financial Performance and Outlook

Dana’s financial performance has shown resilience in the face of market challenges. In the first quarter of 2025, the company reported a slight beat, managing to offset volume pressures through performance improvements and cost savings. While the company’s gross profit margin stands at 8.61%, InvestingPro analysis indicates that net income is expected to grow this year. The guidance for fiscal year 2025 has been maintained, with cost savings expected to balance out increased market pressure and tariff headwinds.

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Earnings per share (EPS) estimates for Dana have been a focal point for analysts. For the fiscal year 2025 (FY1), EPS is projected at 1.30, with expectations of growth to 2.65 for FY2. These projections reflect optimism about the company’s ability to navigate market challenges effectively.

Cost-Cutting Measures and Operational Efficiency

A cornerstone of Dana’s strategy is its aggressive cost-cutting initiative. The company has unveiled a $200 million cost-savings plan, which is expected to be achieved in part by de-emphasizing its electric vehicle (EV) business. This plan is on track, indicating efficient management and potential for margin improvement. The company maintains a healthy liquidity position with a current ratio of 1.43, and has demonstrated its commitment to shareholder returns by maintaining dividend payments for 14 consecutive years.

The cost-out program is seen as a key driver for future profitability. Analysts anticipate that these measures will lead to substantial cost savings, potentially driving the company’s guidance above consensus expectations. The margin guide for 2026 is also ahead of consensus, with an increased cost-saving target as Dana reduces EV spending and simplifies its structure.

Market Position and Industry Trends

Dana’s market position is characterized by its strong US footprint and exposure to internal combustion engine (ICE) technologies, which are viewed positively by some analysts. However, the company operates in a challenging industry environment, with the automotive sector facing various pressures.

The company’s exposure to tariffs is lower compared to its auto industry peers, which is seen as a positive factor. Dana plans to pass any tariff costs to Original Equipment Manufacturers (OEMs), potentially mitigating the impact on their financials. However, the exclusion of tariffs from guidance introduces some uncertainty, as future cost increases could affect margins if not successfully passed on to OEMs.

Electric Vehicle Strategy

In a notable shift, Dana is scaling back its efforts in the electric vehicle space. This strategic decision aligns with current market sentiment, given the slowdown in the EV sector. While this move may help reduce costs and focus resources on core competencies, it also raises questions about Dana’s long-term positioning in an industry that is still expected to trend towards electrification.

The reduced emphasis on EVs is part of Dana’s broader strategy to simplify its structure and improve profitability. However, this decision could potentially limit the company’s growth opportunities in the emerging EV market.

Bear Case

How might the sale of the Off-Highway division impact Dana’s long-term growth prospects?

The sale of the Off-Highway division, while potentially unlocking significant value in the short term, raises questions about Dana’s future growth trajectory. The OH division has been a substantial part of Dana’s business, and its divestiture could limit the company’s diversification and exposure to different market segments. There are concerns about the quality and growth potential of the remaining company post-sale.

Furthermore, the proceeds from the sale, while substantial, may not fully compensate for the lost revenue and growth opportunities associated with the OH division. The company will need to demonstrate that it can effectively reinvest these proceeds or return value to shareholders in a way that offsets the loss of this business segment.

What risks does Dana face in scaling back its EV efforts?

Dana’s decision to reduce its focus on electric vehicles comes at a time when the broader automotive industry is still moving towards electrification, albeit at a slower pace than initially anticipated. This strategic shift could potentially position Dana behind competitors who maintain or increase their EV investments.

If the EV market accelerates faster than Dana anticipates, the company may find itself playing catch-up, potentially losing market share or missing out on lucrative contracts with automakers transitioning to electric platforms. Additionally, scaling back EV efforts could make Dana less attractive to investors and partners who prioritize companies with strong sustainability and electrification strategies.

Bull Case

How could the cost-cutting measures improve Dana’s profitability?

Dana’s $200 million cost-savings plan represents a significant opportunity to enhance profitability. By streamlining operations, reducing EV-related spending, and simplifying its corporate structure, Dana could see substantial improvements in its margins. These cost reductions, coupled with the company’s efforts to pass on tariff-related costs to OEMs, could lead to a more resilient and profitable business model.

Analysts project that these cost-cutting measures will drive Dana’s guidance above consensus expectations, particularly for margins in 2026 and beyond. If successfully implemented, these initiatives could result in a leaner, more efficient organization capable of generating higher returns on invested capital.

What potential benefits could arise from Dana’s renewed focus on its core business?

Dana’s strategic pivot towards its core competencies in drivetrain, sealing, and thermal-management technologies could yield several benefits. By concentrating resources and expertise on these areas, Dana may be able to strengthen its market position and deepen relationships with key customers.

The company’s strong US footprint and experience with ICE technologies position it well to capitalize on the continued demand for traditional vehicle components. As the automotive industry navigates the transition to electric vehicles, there remains a significant market for ICE-related products, which Dana can exploit with its renewed focus.

Moreover, the simplified business structure resulting from the OH division sale and reduced EV efforts could make Dana more agile and better able to respond to market changes. This focus could also lead to improved operational efficiency and potentially higher returns for shareholders through increased profitability and capital returns. The company’s EBITDA stands at $723 million, and according to InvestingPro’s Fair Value analysis, Dana currently appears to be slightly undervalued. For a complete valuation analysis and to see if Dana appears on our undervalued stocks list, consider exploring InvestingPro’s comprehensive research tools.

SWOT Analysis

Strengths:

• Strong US footprint and market presence
• Effective cost-cutting initiatives
• Expertise in drivetrain, sealing, and thermal-management technologies
• Lower tariff exposure compared to industry peers

Weaknesses:

• High leverage
• Uncertainty about the quality and growth potential of the remaining business post-OH sale
• Reduced presence in the growing EV market

Opportunities:

• Significant value unlocking through the Off-Highway division sale
• Potential for increased shareholder returns post-sale
• Cost savings leading to improved margins and profitability
• Simplified business structure enabling greater operational efficiency

Threats:

• Market pressures and competitive landscape in the automotive industry
• Potential loss of growth opportunities in the EV sector
• Risks associated with passing tariff costs to OEMs
• Uncertainty in global economic conditions affecting the automotive market

Analysts Targets

• Barclays (LON:BARC): $25.00 (June 12th, 2025)
• RBC Capital Markets: $20.00 (May 22nd, 2025)
• Barclays: $23.00 (March 13th, 2025)
• Wells Fargo (NYSE:WFC) Securities: $16.00 (January 27th, 2025)

Dana Incorporated is at a pivotal juncture, with its strategic decisions poised to reshape the company’s future. The sale of the Off-Highway division, coupled with aggressive cost-cutting measures and a shift away from EV focus, presents both opportunities and challenges. As the company navigates these changes, investors and analysts will be closely watching to see if Dana can successfully transform itself into a more streamlined, profitable entity while maintaining its competitive edge in a rapidly evolving automotive landscape. This analysis is based on information available up to June 14, 2025.

InvestingPro: Smarter Decisions, Better Returns

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