Auto Industry Outlook Dims: Bank of America


This is a suppler electrical, electronic and safety solutions to automotive and commercial vehicle makers worldwide. The BofA analysts have upgraded Aptiv PLC (NYSE: APTV) stock from Underperform to Buy and raised their price objective from $125 to $165. The company gets high marks from BofA as “one of the best-positioned suppliers, due to its leverage to industry mega-trends (autonomy, electrification, connectivity, etc.), which should drive outsized revenue and earnings growth versus peers.”

Shares traded down about 1.5% Wednesday morning to $111.09, in a 52-week range of $94.75 to $180.81. At BofA’s new price objective, the upside potential on the stock is 48.5%. The price objective represents an EV/EBITDA multiple of 15 times, a figure the analysts say is warranted because Aptiv is “more of a pure-play electrification/autonomy/connectivity/mobility-centric company, unencumbered by factor risks from other non-future tech businesses/products.”

CarMax and America’s Car-Mart

Used car retailers CarMax Inc. (NYSE: KMX) and America’s Car-Mart Inc. (NASDAQ: CRMT) did not fare as well with BofA’s analysts, who cut their ratings, on CarMax from Buy to Neutral and on America’s Car-Mart from Buy to Underperform. Price objectives were lowered from $195 to $165 and $191 to $123, respectively.

America’s Car-Mart focuses on selling older model, higher mileage vehicles, a niche in which BofA analysts expect constrained supply and expect “elevation in used vehicle pricing will negatively impact Car-Mart’s ability to procure good inventory and sell it at affordable prices to customers, which should hinder same-store sales growth, revenue, and earnings.”

CarMax remains focused on expansion and faces persistent COVID-19-related pressures that “could impact levels of trade-in/off-lease vehicles, resulting in reduced supply into the used vehicle channel and lowering vehicle churn, which could drag on same-store sales, revenue, and earnings.”

Shares of America’s Car-Mart traded down about 3.7% Wednesday morning, at $77.77 in a 52-week range of $72.50 to $177.45. At BofA’s price objective of $123.00, the upside potential is 58.2%. The price objective is based on a price/earnings multiple of about 10 times calendar year 2023 earnings estimates and “emerging macroeconomic headwinds [to Car-Mart’s] business including tight inventory in the used vehicle market and weakening of low-income consumers.”

CarMax stock traded down about 3.9% to $95.93, in a 52-week range of $95.04 to $155.98. BofA’s price objective of $165.00 is based on a price/earnings multiple of 20 times for 2023 and implies upside potential of 72%. CarMax continues to implement a more omnichannel approach (i.e., online sales), a solid plus for the company. Downside risks include extreme fluctuations in used car pricing, customer preference for new cars rather than late-model used vehicles, reduced credit availability and increased disruption from more technologically savvy competitors.

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