Ahead of the Bell: Analyst upgrades American Axle

DETROIT (AP) -- An analyst lifted American Axle & Manufacturing Holdings Inc.'s rating to "Buy" from "Hold" on Wednesday and gave the stock a $15 price target for the next year, citing potential growth in truck axle sales. KeyBanc Capital Markets analyst Brett Hoselton wrote in a note to investors that an expected drop in General Motors pickup truck and SUV production in the second half of the year already has been priced into American Axle's stock. The Detroit-based auto parts company gets 55 percent to 60 percent of its sales from the larger GM vehicles, Hoselton wrote. There's potential for growth, however, if there's moderate improvement in the housing market or if oil stays below $100 per barrel, Hoselton wrote. Pickup truck sales generally rise and fall with the housing market. Hoselton expects American Axle should see revenue growth and diversification, which is supported by its new business backlog, with new product launches accelerating next year. At the current sales rate, GM's stockpile of trucks would last 122 days, about double what is considered ideal. The company has said it is building up inventory to handle an economic recovery and some factory down time next year as it prepares for a new version of its pickups, the Chevrolet Silverado and GMC Sierra. Hoselton wrote that extended summer shutdowns at GM's pickup factories, coupled with a recovery from the current soft patch and some added incentives, should bring the inventory under control heading into 2012. "Pickup truck sales are highly correlated with housing starts, and while the recovery in the housing market has been weaker and slower than expected, there have been some small signs of improvement recently," Hoselton wrote. "We remain constructive that the housing market may work its way through the current overhang." American Axle's primary risk has been its concentration in larger GM and Chrysler vehicles in North America, Hoselton wrote. But 70 percent of the company's new business is from outside the U.S., and 75 percent is non-GM. Two thirds of the new business is for passenger cars, crossover and commercial vehicles, he wrote. Hoselton kept his 2011 earnings estimate at $1.67 per share for this year, but raised the 2012 estimate from $1.95 to $2.10. Shares of American Axle closed Tuesday at $10.95. Published: Thu, Jul 7, 2011