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American Axle Cut to Underperform

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On Feb 14, we downgraded driveline systems manufacturer, American Axle and Manufacturing Inc. (AXL - Free Report) , to Underperform based on the company’s poor performance in the fourth quarter of 2012 and risks arising from the sluggish demand for SUVs, high commodity costs and pricing pressure from OEMs.

Why the Downgrade?

American Axle reported a loss of $1.7 million or 2 cents per share in the fourth quarter compared with a profit of $35.9 million or 47 cents in the year-ago quarter. The company’s loss considerably lagged the Zacks Consensus Estimate of a profit of 17 cents. Revenues increased 21.6% year over year to $736.7 million during the quarter, surpassing the Zacks Consensus Estimate of $733 million.

Following the release of the fourth quarter results, the Zacks Consensus Estimate for 2013 decreased 10.1% to $1.79 per share. Moreover, the Zacks Consensus Estimate for 2014 also went down 6.5% to $2.46 per share. With the Zacks Consensus Estimates for both 2013 and 2014 going down, the company retains a Zacks Rank #5 (Strong Sell).

American Axle remains challenged by constant pricing pressure from the major OEM. In addition, the company is exposed to platforms, which faces maximum production cuts. Sales and output levels of RWD light truck and SUV in North America are declining over time, which occupies a substantial portion of the company’s revenues.

Nevertheless, the company focuses on diversifying its customer base, which will enhance its revenues. It develops customer relationships with auto companies including Renault, Nissan Motor Co. (NSANY - Free Report) , Tata, Mahindra, Cherry, Brilliance and others.

Other Stocks to Consider

Commercial Vehicle Group Inc. (CVGI - Free Report) and Oshkosh Corporation (OSK - Free Report) are performing well in the same industry where American Axle operates. Both hold a Zacks Rank #1 (Strong Buy).

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