Market Headwinds for Stoneridge

Stoneridge, Inc. (SRI - Snapshot Report) is aggressively cutting costs and benefiting from the growth of the commercial vehicle market. Increased use of electronics in vehicles is also benefiting the company. However, a squeeze between raw materials and prices, along with weak vehicle demand, force us to rate the shares a Hold with a target price of $15.50, which is 19.6x our 2008 estimate.

Stoneridge reported first quarter results. In the quarter, earnings were $0.28 per share, compared to $0.21 per share in the same period last year. The increase in net income was helped by strong electronics sales in North America and increased joint venture earnings. Net sales were $203 million, up from $185 million in the year-ago period.

Net sales increased primarily due to strong electronics sales in North America and Europe as well as the impact of foreign currency exchange rates. These improvements were accomplished despite a first-quarter production decline of approximately 26% in the medium- and heavy-duty truck markets in North America.

For full-year 2008, the company expects net income per diluted share to be in the range of $0.75 to $0.85, an increase from the previous year’s earnings of $0.71 per share. This anticipated increase includes approximately $9 million to $13 million in restructuring related expenses after the expected benefit from a facility sale.

Stoneridge expects its new product sales and ongoing cost-reduction initiatives to more than offset these restructuring expenses as well as the expected volume declines in certain markets. Currently, shares of Stoneridge are trading at 17.8x our 2008 EPS estimate of $0.79.

Read the full analyst report on SRI.