On Monday (NASDAQ:MNDY), JPMorgan adjusted its financial outlook for Dana Holding (NYSE:NYSE:DAN), a global supplier of drivetrain, sealing, and thermal-management technologies. The firm's analyst reduced the price target to $14.00 from the previous $16.00 but maintained an Overweight rating on the stock.
This decision follows Dana's third-quarter earnings report which, despite showcasing higher than expected EBITDA, also revealed softer end-market demand that is anticipated to persist into 2025.
Dana Holding reported third-quarter revenue of $2.476 billion, falling short of both the Bloomberg consensus of $2.573 billion and JPMorgan's estimate of $2.623 billion. Nevertheless, the adjusted EBITDA for the quarter stood at $232 million, surpassing the consensus of $220 million and JPMorgan's projection of $225 million.
The company managed to achieve a 9.4% margin, which is notably higher than the expected 8.6%. Despite a year-over-year decline in EBITDA of $7 million and a $193 million drop in sales, Dana's limited decremental margin performance of just 3.6% reflects effective cost-saving actions and strong execution.
The third quarter also saw a free cash flow outflow of $11 million, which was below the consensus expectation of a $65 million inflow. The shortfall was attributed to an increase in inventory due to slowing demand, as well as higher cash interest and taxes, which partially negated reduced capital expenditures.
Adjusted earnings per share (EPS) for the quarter came in at $0.12, which is lower than the consensus estimate of $0.22 and JPMorgan's estimate of $0.20, with the higher tax rate offsetting the EBITDA that exceeded expectations.
In light of the current market challenges, including those affecting the electric vehicle sector, Dana's management has revised its full-year revenue and EBITDA forecast to figures that fall below market expectations.
Consequently, JPMorgan has updated its own EBITDA forecasts for Dana, projecting $875 million for 2024, down from the prior estimate of $882 million, and anticipating further reductions in the following years.
The revised December 2025 price target of $14 reflects the lowered estimates for the out-years. JPMorgan highlights Dana's normalized free cash flow, which is expected to be at least $200 million, as a significant factor in the valuation. This projection is based on the company's historical free cash flow performance, including $229 million generated in 2019 and $209 million in 2022.
The firm underscores that the current market capitalization yields over a 16% return on normalized free cash flow, emphasizing the stock's value alongside forward multiples of just 6.7x next twelve months (NTM) EPS and 4.4x NTM EBITDA.
InvestingPro Insights
Recent data from InvestingPro offers additional context to JPMorgan's analysis of Dana Holding (NYSE:DAN). Despite the challenges highlighted in the article, InvestingPro Tips suggest that Dana's net income is expected to grow this year, and analysts predict the company will return to profitability. This aligns with JPMorgan's view on Dana's potential for recovery.
The company's P/E Ratio (Adjusted) for the last twelve months as of Q3 2024 stands at 30.49, while its Price to Book ratio is 0.83, indicating the stock might be undervalued relative to its book value. This could support JPMorgan's Overweight rating, despite the lowered price target.
Dana's dividend yield of 4.71% and its 13-year streak of maintaining dividend payments demonstrate the company's commitment to shareholder returns, even in challenging times. This consistent dividend policy might provide some stability for investors during the current market uncertainties.
InvestingPro offers 11 additional tips for Dana Holding, providing a more comprehensive analysis for investors looking to delve deeper into the company's prospects.
This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.