Industry Stocks Touted

DETROIT--Brokerage firm First of Michigan has placed “strong buy” ratings on the stocks of Delphi Automotive Systems, ArvinMeritor Inc., Lear Corp. and Donnelly Inc.

“We recommend purchase of Delphi Automotive Systems for large- cap, value investors,” said FoM automotive analyst Richard Hilgert. “Delphi Automotive has good potential for revenue growth in ‘non-North America GM’ business as a result of the automakers’ reduction in suppliers, its capabilities in systems and modules, customers’ global sourcing trends, and increasing electrical and electronic vehicle content.”

Even though he has reduced earnings estimates from 55 cents per share to 31 cents per share because of decreased customer production, Hilgert still thinks Delphi’s stock could reach $18 per share over the next 12 months.

The stock of ArvinMeritor is also being called a strong buy by Hilgert despite reducing his earlier $3.70 earnings per share forecast for 2001 down to $2. Hilgert attributed the anticipated lower earnings to what he sees as “an estimated decline of 40 percent in North American Class 8 truck sales as well as a weaker light vehicle market.” To reflect the lower than anticipated industry volumes, he has also reduced the 12-month stock price target from $18 to $14.50.

The stock price of Lear, said Hilgert, “does not accurately reflect the company’s future growth potential from its backlog of booked new business, the trend toward greater use of vehicular electronics and its customers’ increasing need for global suppliers of complete cockpit modules.” His 12-month price target is $28 per share.

“Offsetting the impact of lower anticipated 2001 industry volume, Lear has begun to implement Six Sigma cost savings measures, which should produce free cash flow. They have initiated a share repurchase program, and a significant amount of new business is booked for ‘01,” he explained. “In addition, strong estimated free cash flow generation reduces debt and interest expense through 2001. Because LEA trades at 1.2X cash flow and 4.0X enterprise value to EBITDA, we are maintaining our srong buy recommendation,” he added.

“Donnelly...has the No. 1 market share of interior rearview mirrors,” Hilgert noted. “Due to increasing electronics in today’s vehicles, many of these features are migrating into the rearview mirror. Our 12 month price target is $16 with a longer-term view to $22,” he predicted.

“Partnering with Johnson Controls will likely solidify Donnelly’s electronic growth trends. Despite declining North American industry volume, we estimate 2001 revenue and earnings per share will increase 10 percent and 11 percent, respectively.” At the same time, Hilgert has lowered his Donnelly 2001 estimate from $2.30 to $2 per share.

In his capacity as an equity automotive analyst for First of Michigan and its parent company, Fahnestock & Co. Inc., Hilgert provides analysis on 28 leading companies.

FoM was founded in 1933 and has 25 offices throughout Michigan.

For more information, contact www.delphiauto.com, www.lear.com, www.donnelly.com, www.ArvinMeritor.com and www.Fahnestock.com.