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On May 17, we upgraded Superior Industries Inc. (SUP - Analyst Report) to Neutral based on its strong product portfolio and improving revenues in the first quarter of 2013. However, we are concerned about the company’s significant customer concentration risk from the Detroit Big Three.

Why the Upgrade?

On May 3, Superior Industries posted earnings per share of 18 cents in the first quarter of 2013 in line with the Zacks Consensus Estimate. However, it declined 28% year over year from 25 cents in the first quarter of 2012.

Revenues in the quarter rose 1.97% to $206.4 million, beating the Zacks Consensus Estimate of $199.0 million. The year-over-year improvement was driven by stronger sales mix. Unit shipments remained flat at 3.1 million units compared with the year-ago quarter.

Following the release of the first-quarter results, the Zacks Consensus Estimate for 2013 decreased 6.8% to 69 cents per share. The Zacks Consensus Estimate for 2014 declined 8.9% to 72 cents per share.

Superior Industries will benefit from the strong product portfolio, which is expected to match with the current market trends. The company is the largest manufacturer of aluminum wheels, which are widely accepted due to their lighter weight. Presently, aluminum wheels constitute about 65% of the total number of vehicles, and are expected to increase by 1% every year.

Superior Industries has no bank or other interest bearing debt on its balance sheet at the end of first-quarter 2013. The absence of any long-term debt will allow the company to fully utilize the cash for investing in potential opportunities. As of Mar 31, 2013, Superior Industries had a working capital of $345.3 million compared with $338.3 million as of Dec 30, 2012.

However, Superior Industries remains under pressure due to customer concentration. The Big Three customers of the company, Ford Motor Co. (F - Analyst Report), General Motors Company (GM - Analyst Report) and Chrysler constitute 75% of its total wheel sales. Any fluctuation in demand will adversely affect the company.

Other Stocks to Consider

Tower International, Inc. (TOWR - Snapshot Report), a Zacks Rank #1 (Strong Buy) stock, is performing well in the industry where Superior Industries operates.

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