Auto Suppliers Surge on Strong Results and Signs of Reopening
(Bloomberg) -- Shares of car-parts suppliers rallied Friday after stronger-than-expected results suggest the companies may be doing better than feared amid the challenges posed by the coronavirus pandemic.
American Axle, Lear and Tenneco were among the biggest gainers in the sector after all three reported first-quarter results that impressed investors and analysts, though concerns about the second quarter persist. Shares also received a boost on news that manufacturers in Michigan and California may resume operations in the coming days.
The S&P Supercomposite Auto Components Industry Index gained as much as 6.2%, while the S&P 500 Index rose 1.5%. Valuations in the sector had suffered significantly this year, as investors worried about a sharp decline in car sales and production as people were advised to stay home in order to curb the spread of the Covid-19 infection.
Shares of axle, drive shaft and chassis components maker American Axle soared 43%, with Credit Suisse analyst Dan Levy saying the results significantly exceeded expectations and arguably demonstrated a “more resilient business model than perceived.”
As expected, several of the suppliers withdrew their forecast for the year, citing heightened uncertainty due to the virus outbreak.
Michigan has cleared the way for manufacturers to reopen beginning May 11, while in California openings could start as soon as Friday. It means North American plants can restart around May 18 for Detroit carmakers General Motors, Ford and Fiat Chrysler.
The reopening “continues to add to a relatively bullish narrative we’ve been holding for U.S. autos in recent weeks,” Morgan Stanley analyst Adam Jonas wrote to clients. He added that he hasn’t been this bullish on the sector in nearly a decade.
“We might just see the pace of demand recovery progress faster than the pace of supply re-start, driving potentially more favorable supply/demand balance than currently expected,” Jonas wrote.
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