Adient's Trading as if It Will Never Get Better
We think the automotive seating company's woes are fixable.
Adient’s (ADNT) stock has taken a wild ride since the October 2016 spin-off from Johnson Controls. The shares briefly dipped under $40 in November 2016, then reached an all-time high of $86.42 in September 2017. So far in 2018, the stock price has dropped nearly in half. Operational problems disclosed in January in the seat structures and mechanisms group turned out to not be confined to that segment. Then in June, management lowered fiscal 2018 guidance due to unspecified manufacturing issues in the seating segment and announced the immediate resignation of the chairman and CEO.
We think this sell-off is an excellent buying opportunity for the long-term investor. We consider Adient’s problems to be primarily from poor execution and therefore fixable. Also, we do not consider the company to be heading toward financial distress, and we think it can even maintain its dividend as it restructures. Adient still has selling, general, and administrative expenses to cut from its Johnson Controls days and manufacturing to move from high-cost countries to low-cost countries. Its seating EBIT margins trail those of top competitor Lear (LEA), and we don’t see why that difference must be permanent.
David Whiston does not own shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.