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On Monday, UBS analyst Joseph Spak increased the price target for Dana Holding (NYSE:DAN) shares to $20.00, up from the previous $18.00, while keeping a Buy rating on the stock. The adjustment follows Dana's recent business update, which highlighted greater cost savings than initially anticipated. The stock, currently trading at $15.01, has shown remarkable momentum with a 17.65% gain in the past week. According to InvestingPro analysis, the stock appears to be trading above its Fair Value, with technical indicators suggesting overbought conditions.
Dana Holding, an automotive supplier with a market capitalization of $2.18 billion, has reportedly identified cost savings of $300 million, a significant increase from the earlier estimate of $200 million. This improvement has been factored into the new price target, which is still based on the Sum of the Parts (SOTP) valuation method. InvestingPro data reveals that while the company wasn't profitable in the last twelve months, analysts expect net income growth this year. Get access to 10+ additional exclusive ProTips and comprehensive financial analysis with InvestingPro.
Spak explained the rationale behind the new target, stating that applying an approximate 6x EBITDA multiple to the potential proceeds from the sale of Dana's Ohio operations could result in around $2.2 billion. The expectation is that Dana would use these funds to reduce its debt. Additionally, by incorporating the $300 million in cost savings, which nets to $260 million after accounting for stranded costs, the pro forma RemainCo. EBITDA is estimated at $698 million.
The UBS analyst applied a 4.3x Enterprise Value (EV) to EBITDA multiple to the forecasted EBITDA with the updated capital structure, leading to the revised $20 price target. Spak also noted that Dana aims to maintain a leverage ratio of 1x through the business cycle. Following the sale of the Ohio operations, the company is expected to transition from a net debt position to a net cash position.
Spak suggested that with a base case, Dana could have approximately $900 million in capacity to reach the targeted leverage ratio. This financial flexibility could potentially be used for share repurchases or a special dividend, which could account for roughly 33% of the post-transaction equity value of Dana. The company maintains strong liquidity with a current ratio of 1.49 and has maintained dividend payments for 13 consecutive years. For deeper insights into Dana's financial health and future prospects, access the comprehensive Pro Research Report available on InvestingPro.
However, since Dana must first complete the sale and achieve the cost savings, UBS has not yet taken any potential capital allocation into account. Spak concluded by indicating that this next phase in Dana's strategy may offer additional upside to the stock value in the future.
In other recent news, Dana Holding Corporation has seen a number of significant developments. The company has revealed its financial targets for 2025, with sales projected to be between $9.525 billion and $10.025 billion, and adjusted EBITDA estimated between $925 million and $1.025 billion. Dana also anticipates a free cash flow of $175 to $275 million for 2025, driven by cost-saving actions totaling $175 million and increased operational efficiency.
Dana has also announced the reorganization of its structure into two segments: Light Vehicle Systems and Commercial Vehicle Systems, following the proposed sale of its Off-Highway business. This move is expected to reduce leverage and return capital to shareholders. In addition, Dana has appointed Brett Icahn and Christian Garcia as new directors, replacing Gary Hu and Steven Miller.
Several analyst firms have adjusted their ratings for Dana. While CFRA analyst Garrett Nelson raised the price target for Dana to $10.00, he maintained a Sell rating on the stock. On the other hand, UBS, Deutsche Bank (ETR:DBKGn), and Barclays (LON:BARC) have upgraded Dana's stock from Neutral to Buy. However, JPMorgan reduced its price target for Dana, maintaining an Overweight rating on the stock. These are recent developments for Dana Holding Corporation.
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