On Monday, Barclays (LON:BARC) made a significant adjustment to its stance on Dana Holding (NYSE: NYSE:DAN), upgrading the stock from Equalweight to Overweight and increasing the price target to $18.00, up from the previous target of $12.00. Currently trading at $10.00, Dana has shown significant momentum with a 12.6% return over the last week, according to InvestingPro data.
The firm noted that Dana had been one of the more challenged stocks in recent years, lagging behind the broader market and other supplier stocks in its coverage, evidenced by its -27.4% return over the past six months.
The analyst from Barclays pointed out that, while Dana's EBITDA has grown, it has not met market expectations. Originally, the 2024 EBITDA was projected to be over $1.2 billion, but it is now on track to fall short of $900 million. InvestingPro data shows current EBITDA at $770 million, with four analysts recently revising their earnings expectations downward.
This downward revision has been attributed to inflationary pressures, weak end markets, and the financial burden of investing in electric vehicles (EVs).
Additionally, Dana's high leverage, currently at 2.6 times net debt to trailing twelve months EBITDA, and its lower-than-expected free cash flow (FCF) margin, which is anticipated to be 1% in 2024, have contributed to the stock's underperformance.
This weak financial performance has been particularly disappointing given the company's failure to benefit from the sustained interest in internal combustion engines and its limited exposure to the European and Chinese Light Vehicle Production (LVP), which have been challenging markets for other suppliers.
The Barclays analyst concluded that Dana's stock narrative had been stalled due to the combination of high leverage, weak FCF, and recent pressure in its core markets.
However, despite these challenges and a previously unclear outlook for renewed investor interest, the firm has now seen fit to upgrade the stock and set a higher price target.
In other recent news, Dana Incorporated has announced significant changes in its leadership and strategic direction. R. Bruce McDonald has been appointed as the new Chairman and CEO, succeeding James Kamsickas who will continue to serve as an advisor until March 2025.
Dana is also planning to sell its Off-Highway business, with Goldman Sachs (NYSE:GS) & Co. LLC and Morgan Stanley (NYSE:MS) & Co. LLC advising on the sale. This move aims to streamline operations and cater to light and commercial vehicle markets.
Simultaneously, Dana is launching a $200 million cost reduction plan to enhance profitability and cash flow, targeting a reduction in selling, general, and administrative costs. The company expects to realize annualized savings of approximately $200 million by 2026.
Despite these strategic shifts, Dana reaffirms its full-year 2024 guidance, with sales projected between $10.2 and $10.4 billion, adjusted EBITDA of $855 to $895 million, and free cash flow of $90 to $110 million.
In line with these developments, Dana reported third-quarter revenue of $2.476 billion, falling short of the Bloomberg consensus but surpassing the consensus for adjusted EBITDA at $232 million. JPMorgan (NYSE:JPM) adjusted its financial outlook for Dana, reducing the price target but maintaining an Overweight rating on the stock. These recent developments highlight Dana's focus on operational efficiency and cost management amidst challenging market conditions.
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