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Stock Strategist

Adient Starts to Deliver on Turnaround

Even after the market’s positive reaction, the stock looks very undervalued.

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Automotive seating supplier Adient’s (ADNT) fiscal third-quarter results support our thesis of a long-term turnaround story moving in the right direction, so we are leaving our $53 fair value estimate in place. Adjusted diluted earnings per share of $0.38 beat consensus of $0.34, while a 6.1% year-over-year decline in revenue (down 2.8% excluding foreign exchange) to $4.2 billion beat consensus of $4.1 billion. Free cash flow of $168 million declined from the prior-year quarter’s $252 million, but last year included $94 million of proceeds from factoring receivables.

The quarter showed that operational challenges remain but also revealed improvement in execution, requiring less expedited freight. Through June for the year, premium freight costs have fallen about 65% versus fiscal 2018, but continued manufacturing problems in the Americas and the Europe, Middle East, and Africa segments, plus large volume declines in Asia from China, led to all three geographic segments posting year-over-year declines in adjusted EBITDA. Adjusted EBITDA improved sequentially for the second straight quarter.

David Whiston does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.

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