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1、July31,201811:05PMGMT4July31,201804:01AMGMTAutos&SharedMobilitySeating:UpgradingLEAtoOWonStrongExecutionvs.DowngradingADNTtoUWonAutos&SharedMobilityNorthAmerica4OperationalChallengesWeseelimitedupsidetonumbersforADNTinthenearterm,asthecompanyworksthroughoperationalchallenges,andanasymme
2、tricriskrewardtothedownsideiftheseheadwindspersists.Meanwhile,LEA,withastrongoperationaltrackrecord,istradingatadiscounttoADNT.WHAT'SCHANGEDAdientPLC(ADNT.N)FromToRatingEqual-weightUnderweightLearCorporation(LEA.N)RatingEqual-weightOverweightWearedowngradingADNTfromEWtoUW,loweringourpric
3、etargetfrom$50to$43,andloweringADNTto#8(from#6)inourcoveragerankingsfortheUSautosuppliers.WerecentlydowngradedthestockfromOWtoEW,whenwedetermineditwasgoingtotakeyearstoworkthroughthechallengesattheSeatStructures&Mechanismsbusiness.Sincethen,managementloweredtheguidancefortheSeatingbusine
4、ssduetofurtheroperationalchallenges.Whilethecompanyhasacknowledgedtheseoperationalchallenges,andisworkingthroughthem,weseelimitedupsidetonumbersinthenearterm,withourestimateforCY2019approximately15%belowConsensus,andanasymmetricrisk/rewardtothedownsideiftheseheadwindspersist.Furthermore,
5、intheeventofacyclicaldownturn,weseeacompanywithleverageof2.3xandthepotentialforthattotrendhigher.Ourpricetargetof$43isbasedonasum-of-the-partsvaluation,with5.0x2019eEV/EBITDAfortheSeatingbusiness,$0fortheSeatStructures&Mechanismsbusiness,7.0x2019eP/EfortheEquityIncome,anda10%discounttoth
6、esum-of-the-parts.The$7decreasetoourpricetargetisdueto$1fromhighernetdebtand$6fromlowerestimate/multipleforEquityIncome(7.0x2019eP/EforEquityIncomeassumesa1.0xpremiumvs.whereADNTcurrentlyIndustryViewCautious4trades,withtheUnconsolidatedBusinessperformingbetterthantheConsolidatedBusines
7、s).OurBaseCaseassumesthatFY2019Revenuegrowswithglobalproduction(withoutincludingthebacklog)and~100bpsofmarginexpansionfromoperationalimprovementsvs.FY2018.Weseeanasymmetricrisk/rewardtothedownsidewith-50%toour$26BearCasethatassumesnomargin/operationalimprovementandlowermu