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On Thursday, UBS analyst Joseph Spak increased the price target for Aptive PLC (NYSE:APTV) to $82 from the previous $73, while retaining a Buy rating on the stock. Currently trading at $64.13, Aptiv appears undervalued according to InvestingPro analysis, with analyst targets ranging from $60 to $105. Spak's optimism is rooted in Aptive's decision to spin off its Electrical Distribution Systems (EDS) business, a move he believes will unlock value and strategically position the resulting independent companies for success.
The analyst noted that the separation could be more advantageous than a spin-off of Aptive's connector business, as it aligns the growth and margin profiles of the remaining entities within RemainCo, which includes the Electrically Charged Gear (ECG) and Advanced Safety and User Experience (AS&UX) segments. This restructuring is expected to allow RemainCo to reduce its debt more rapidly by transferring a greater portion of it to the EDS business, which, despite its slower growth, has stable financials.
Management at Aptive has conducted a thorough evaluation of their entire portfolio, leading to the conclusion that EDS could be valued in the range of approximately 4-6 times its EBITDA, with a base case of 4.8 times. The company's current enterprise value to EBITDA ratio stands at 7.23, with total EBITDA reaching $3.03 billion. For comprehensive valuation metrics and expert analysis, investors can access the full Pro Research Report on InvestingPro. Meanwhile, the new Aptive is projected to trade at about 7.5-10 times EBITDA, with an 8.3 times base case used by UBS in their analysis.
Spak supports the view that RemainCo, or the new Aptive, could leverage its robust free cash flow to diversify further from the automotive sector, potentially leading to a re-rating over time. The raised price target to $82 is based on an approximate 10 times the 2026 P/E ratio, up from the prior 9 times. The Sum of The Parts (SOTP) analysis and sensitivity detailed in the report underpin the revised multiple and the continuing positive outlook for the company.
In other recent news, Aptive PLC has announced significant strategic decisions, including the intent to spin off its Electrical Distribution Systems (EDS) business. This move has been met with various reactions from analysts. Baird analyst David Leiker raised Aptive's price target to $75, maintaining a neutral stance. Piper Sandler upgraded Aptive's stock from Underweight to Neutral, setting a new target of $65. CFRA maintained a strong buy rating but adjusted the stock target to $85, while Oppenheimer maintained an Outperform rating with an $83 target.
Aptive PLC's shareholders have also approved a major corporate restructuring plan, including a merger and scheme of arrangement. The company has decided to fully redeem €700 million of its Euro-Denominated Senior Notes due in 2025, highlighting their strategic financial maneuvering.
Despite a 6% drop in Q3 2024 revenue to $4.9 billion, Aptive saw an increase in earnings per share (EPS) to $1.83. The company revised its full-year revenue outlook to between $19.6 billion and $19.9 billion, with an operating margin of 11.9%, and lowered its adjusted full-year EPS estimates to $6.15. These are among the recent developments at Aptive PLC.
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