Extending their 27% slide from November, shares of Adient (NYSE: ADNT) dropped another 36% in December, according to data from S&P Global Market Intelligence. In addition to the overall downturn in the market, rumblings of negative sentiment from Wall Street helped drive shares lower.
Within several days of each other, KeyBanc and Deutsche Bank both initiated coverage on the stock, according to Thefly.com. Issuing an "underweight" rating on the stock, KeyBanc assigned a price target of $18. Slightly more bullish, Emmanual Rosner, an analyst at Deutsche Bank, assigned a hold rating and a $20 price target.
To put in perspective how disheartening these price targets were for investors, consider that in November, analyst Colin Langan at UBS had provided an optimistic outlook on the stock even after Adient had announced its decision to cut its dividend, and the market pumped its brakes on the stock in response. Langan reiterated a buy rating and assigned a $50 price target.
It's often best to take analysts' ratings and price targets with a grain of salt, since their time horizons are frequently shorter than the multi-year holding periods we favor. In this case, however, it's reasonable to take a circumspect approach.
Adient, a manufacturer of automotive seating and interiors, traveled a rough road in 2018. Although the company's top line grew 7.6% in 2018 over 2017, annual gross and operating margin contracted 350 and 320 basis points, respectively, according to Morningstar. This performance contributed to a report of 2018 net income of negative-$1.69 billion, a steep drop from the $877 million it reported for 2017. Moreover, the cash flow statement provided another source of concern, as operational cash flow fell from $746 million in 2017 to $649 million in 2018.
Through 2019, investors will want to keep a close eye not only on whether the dividend is reinstated, but also on the company's margin and cash flow, for if these reverse course and start rising again, they could be signs that the company's progress is back on track.
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