BMO Upgrades Visteon With Increased Confidence Company Can Hit Its Targets

Following its meeting with Visteon Corp (NYSE: VC) management, BMO Capital Market upgraded shares of the company. The firm premised the upgrade on its increasing confidence that the management will be able to hit its long-term sales and profit targets.

The rating on the shares now goes from Market Perform to Outperform and the price target was increased from $104 to $115.

Analyst Richard Carlson said he is increasingly optimistic the company could hit its goals of $4.7 billion in sales and 14 percent EBITDA margin by 2021. The analyst noted that Visteon under the leadership of Sachin Lawande, who joined in June 2015, has been booking business at a very high rate.

BMO Capital Markets expects bookings to remain well above the revenue run rate for the foreseeable future and revenue growth to accelerate in 2018 and 2019. The firm is of the view that the company may end the decade with revenue growth in double-digits, as backlog converts to revenues.

The firm sees Visteon as one of the most attractive names in the auto industry, given its sole focus on the fast-growing cockpit electronics sector and self-help initiatives under way to drive margin improvement.

"We also believe the combination of higher-margin products being booked and continued internal initiatives to drive profit enhancement sets the company up well to reach the 14% EBITDA margin goal," the firm said.

The firm clarified that it is currently not making any adjustments to its model and consequently, its in-line 2017 and 2018 EBITDA estimates remain intact.

The revision in price target was due to the firm switching its valuation methodology from P/E to EV/EBITDA, and basing it on the long-term targets, given its belief that the latter is reasonable.

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