On Thursday, UBS upgraded Dana Holding (NYSE:DAN) stock from Neutral to Buy, significantly raising the price target from $11.00 to $18.00. The upgrade comes with a positive outlook on the company's financial strategy, specifically regarding the potential sale of its Off-Highway (OH) business and planned cost savings.
According to InvestingPro data, Dana currently trades at $12.07, with analysts forecasting profitability this year despite recent challenges. The company maintains a market capitalization of $1.75 billion and shows a relatively high beta of 2.3, indicating significant stock price volatility.
Dana Holding expects to announce the sale of its OH business in the first half of 2025. The sale is anticipated to allow the company to reduce debt and increase the value accruing to equity holders. UBS estimates that the sale could yield proceeds of approximately $2.1 billion, assuming a transaction multiple of around 6 times EBITDA.
InvestingPro analysis shows the company's current EV/EBITDA ratio stands at 5.79x, with trailing twelve-month EBITDA of $770 million. For deeper insights into Dana's valuation metrics and comprehensive financial analysis, investors can access the detailed Pro Research Report, available exclusively on InvestingPro.
The company has also outlined a plan to save $200 million by 2026, driven by a strategic shift away from electric vehicles (EVs). These savings are expected to maintain or improve the EBITDA margins of the remaining company, despite shedding the higher EBITDA dollar and margin business. The forecasted improvement in free cash flow (FCF) is another factor contributing to the analyst's positive stance.
UBS's new price target of $18.00 is based on applying a 4.3 times enterprise value to EBITDA (EV/EBITDA) multiple to Dana's projected pro forma RemainCo. EBITDA of $662 million. This valuation takes into account the new capital structure post-debt paydown from the OH business sale proceeds.
The analyst highlighted that while Dana faces some near-term market and customer-related challenges, the potential for value unlocking is substantial. The current stock price suggests that the market is valuing the RemainCo. at approximately 2.85 times its estimated 2026 EV/EBITDA, which is lower compared to its closest peer AXL, trading at around 3.9 times its 2026 EV/EBITDA. UBS's analysis suggests that there is a meaningful opportunity for the stock's value to increase.
InvestingPro data reveals that Dana has maintained dividend payments for 13 consecutive years, with a current gross profit margin of 8.69%. The platform offers additional ProTips and detailed financial metrics to help investors make informed decisions about Dana's potential.
In other recent news, Dana Holding Corporation has undergone significant changes and faced a variety of market challenges. The company has been the subject of several analyst adjustments, with Deutsche Bank (ETR:DBKGn) upgrading Dana's stock from Hold to Buy, and Barclays (LON:BARC) also upgrading the stock from Equalweight to Overweight. Both firms cited Dana's strategic moves, such as the divestiture of its Off-highway business and a $200 million cost reduction plan, as pivotal steps towards improving its financial position.
Dana's Off-highway business sale is expected to generate around $2.5 billion, which the company plans to use for debt reduction. The cost-saving measures, anticipated to be partially realized in 2025 and fully by 2026, aim to preserve Dana's EBITDA margin between 8-8.5%. These developments have led Deutsche Bank to double its price target for Dana to $19.00, while Barclays has increased its price target to $18.00.
In contrast, JPMorgan (NYSE:JPM) has lowered its price target for Dana, while maintaining an Overweight rating on the stock. This adjustment follows Dana's third-quarter earnings report, which revealed a revenue of $2.476 billion, falling short of the Bloomberg consensus, but surpassing the consensus for adjusted EBITDA at $232 million.
Dana has also announced leadership changes, with R. Bruce McDonald appointed as the new Chairman and CEO. Despite these strategic shifts and challenging market conditions, the company 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.
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