DPH: Notes From Analyst Meeting
2002-06-26 10:12 (New York)
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### ### WACHOVIA SECURITIES ### ###
June 26, 2002
DPH: Notes From Analyst Meeting: Raising Estimates Reflecting Higher GM
Production
Earnings Estimates Revised Up
Delphi Automotive Systems Corporation Stock Rating: 2
Price: $13.07 Jon Rogers / (212) 891-5043
52-Wk. Rng.: $18-9 Elizabeth Lepore / (212) 891-5061
Shares Out.:(MM) 567.0
Market Cap.:(MM) 7,410.7
[HI
EPS 2001A 2002E 2003E REV.2002 2003
FY(Dec.) Current Prior Current Prior Current Prior
Q1(Mar.) ($0.04) NC $0.22A NC NE NC $6,688.0MM NE
Q2(June) 0.29 NC 0.37 0.35 NE NC 7,300.0 NE
Q3(Sep.) 0.05 NC 0.09 NC NE NC 6,050.0 NE
Q4(Dec.) 0.10 NC 0.24 NC NE NC 6,700.0 NE
Full FY $0.40 NC $0.92 $0.90 $1.30 NC $26,738.0MM
$27,600.0MM
FY P/E 32.7x 14.2x 10.1x
Full CY $0.40 NC $0.92 $0.90 $1.30 NC
CY P/E 32.7x 14.2x 10.1x
]
Source: Company data and Wachovia Securities estimates.
NA = Not Available, NC = No Change; NE = No Estimate; NM = Not Meaningful
Target Price: $19 LT Debt:(MM) $2,078.0
Float:(MM) 492.7 LT Debt/Total Cap.: 59.8%
Avg. Daily Vol.: 2,379,810 ROE: 10%
S&P 500: 976.14 3-5 Yr. Est. Grth. Rate: 5%
Div./Yield: $0.28/1.8% CY2002Est. P/E-to-Grth.: 2.8x
Key Points
* DPH hosted its annual analyst meeting in Detroit. Key takeaways included the
following: Management revised its Q2 revenue outlook to a range of $7.2-7.3
billion, up from $7.1 billion. The company now anticipates that net income will
fall in a range of $210-220MM, up from previous expectations of $200 million.
* Initial Q2 GM light vehicle production schedules called for growth of 13% over
Q1. It now appears that production will exceed prior expectations, growing an
estimated 16% over Q1. As a result, we are raising our Q2 2002 EPS estimate to
$0.37, up from $0.35 on higher-than-expected GM North American light vehicle
production. Our new full-year EPS estimate is $0.92, up from $0.90
* Management expects year-end debt levels of approximately $3.4 billion,
unchanged from 2001. We expect total debt-to-capitalization of 54.3% at the end
of 2002.
* Management indicated that it was 70% complete with its 2002 restructuring
plans. The company also stated that some of the factors inhibiting 2002
results, such as pension, healthcare, wages and price pressure should be
alleviated somewhat in 2003.
* DPH addressed the issue of GM's plans to cut costs by decontenting some of its
vehicles this year, indicating a potential negative impact of $75-150 a vehicle
on the DPH's business with GM in 2002. DPH is rated Buy (2). Our target price on
DPH shares is $19 based on an EV/EBITDA of 5.5x our 2003 EBITDA estimate. DPH
currently trades at 4.1x our 2003 EBITDA estimate of $2,345.0 million. Our
discounted cash flow valuation model, which reflects our higher earnings
estimates and better capital utilization, supports this target price.
Investment Thesis
We reiterate our Buy (2) rating on DPH shares. Our rating takes into account the
longer term prospects for the company, including the implications of 1) the
strongest portfolio of proprietary technology in the business; 2) free cash flow
growth; and 3) a strong, conservative management team.
Investment Conclusion
We reiterate our Buy (2) rating on DPH shares. Our rating takes into account the
longer-term prospects for the company, including the implications of, in our
opinion, (1) the strongest portfolio of proprietary technology in the business;
(2) free cash flow growth; and (3) a strong, conservative management team.
We are raising our Q2 2002 EPS estimate to $0.37 from $0.35 and our 2002 EPS
estimate to $0.92 from $0.90 due to higher production expectations for General
Motors light vehicles in Q2 2002. Initial GM light vehicle production
expectations called for growth of 13% over production in Q2 2001. It now
appears as though production will grow an estimated 16% over Q2 2001, as
schedules are better than initial expectations.
We expect Delphi to emerge from its current restructuring with higher normalized
margins and greater earnings power. However, our enthusiasm in the past has
been tempered by some concerns. Chief among these concerns are rising pension
and healthcare costs expected to affect both gross margins and cash flow in
2002. Management indicated that it expects a reduction in these negative factors
in 2003. However, we do continue to harbor concerns over the impact of General
Motors’ efforts to cut production costs by decontenting its vehicles. DPH
addressed the issue of GM's plans, indicating a potential negative impact of
$75-150 per vehicle on the DPH's business with GM in 2002.
The cash impact of pension contributions and restructuring actions offsets our
expectation for higher free cash flow in 2002. Our GAAP free cash flow estimate
for the year is $123.9 million. We remain optimistic that free cash flow will
improve in 2003 on the combination of higher earnings and the end of GM true-up
payments. Our 2003 free cash flow estimate is $339.8 million.
Free cash generation remains the primary investment theme driving our enthusiasm
for DPH shares. With restructuring and payments to GM complete, Delphi’s cash
generating power is significant. We expect management to use free cash to
improve shareholder value through share repurchase and debt reduction.
DPH is rated Buy (2). Our target price on DPH shares is $19 based on an
EV/EBITDA of 5.5x our 2003 EBITDA estimate. DPH currently trades at 4.1x our
2003 EBITDA estimate of $2,345.0 million. Our discounted cash flow valuation
model, which reflects our higher earnings estimates and better capital
utilization, supports this target price. |
