Visteon Looking Beyond Ford

Visteon Corp. (VC) is focusing on strengthening its non-Ford (F - Analyst Report) businesses and reducing costs in order to attain long-term profitability. The closure of underperforming facilities and the reduction of headcount are improving the company’s fundamentals.

However, the company’s near-term prospects have been dampened by higher costs and a weak automotive market. Moreover, higher restructuring charges are eroding the profits of the company. Thus, we maintain our Hold rating, with a target price of $4.00.

Visteon’s primary objective is to reduce its excessive dependence on Ford. The company has made some progress in this regard by increasingly including other clients in its business mix. The company plans to make Hyundai Motor Co. and Kia Motor Corp. account for 28% of its total sales by 2010.

Further, the company has been awarded new business worth $1 billion for the next three years, 80% out of which will be manufactured in lower-cost facilities. Visteon is also strengthening its competitive position by opening and expanding technical centers globally. In addition, it has embarked on a major restructuring drive that should add $420 million to earnings by 2010. VC expects savings of $110 million in 2008. Further, the company recently announced a share repurchase program of up to 2 million shares over the next 24 months.

We assume that a negative impact of high commodity prices will continue to affect VC’s bottom line. Given the slowing U.S. economy and slumping housing market, sales and production in North America are expected to decline in 2008.

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