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Non-Tech : Delphi Automotive Systems (DPH) -- Ignore unavailable to you. Want to Upgrade?

To: Stephen O who wrote (301)	6/27/2002 8:30:25 PM
From: Stephen O	Respond to of 397

DPH: Notes From Analyst Meeting 2002-06-26 10:12 (New York) For certain non-US institutional readers, this Research is issued by Wachovia Securities International Limited, which is regulated in the UK by the Financial Services Authority. First Union Securities, Inc. and Wachovia Securities International Limited provide investment services in certain countries and have each approved the contents of this web site for viewing by approved parties in the country in which it does business. Not all investments or related services are available to residents of every country. Please consult your Financial Advisor or the Wachovia/First Union Securities office in your area for additional information. US residents are directed to Wachovia.com for investment and related services. ------------------------------------------------------------------------------- ### ### 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.