Dana Incorporated

Company Overview: Dana Incorporated (NYSE: DAN) manufactures and designs propulsion and energy-management solutions for almost all mobility markets. The company’s segments include Commercial Vehicle Drive and Motion Systems, Light Vehicle Drive Systems, Off-Highway Drive and Motion Systems, and Power Technologies.

­­­­­­DAN Details

Material Business Updates

Figure 1: Key Items from Press Releases

Company Press Release; Analysis by Kalkine Group

Historical Financial Trend:

DAN illustrated sustainable historical growth until FY20, when DAN experienced short-term disruptions from substantial exogenous factors affecting the mobility industry. The gross profits have manifested a feasible uptrend until FY20 when the top-line shredded to almost FY17 levels. Operating revenues grew at a 5.1% CAGR (FY16 – FY20).

Figure 2: Historical Financial Overview

Source: Company Reports, Analysis by Kalkine Group

Third Quarter FY21 Performance:

Figure 3: Quarterly Performance Highlights

Source: Company Reports, Analysis by Kalkine Group

Full-Year FY20 Performance:

Figure 4: Annual Performance Snapshot

Source: Company Reports, Analysis by Kalkine Group

Top 10 Shareholders:

The top 10 shareholders together form ~52.15% of the total shareholding. Icahn Associates Corporation [Activist] and BlackRock Institutional Trust Company, N.A., hold a maximum stake in the company at ~­­­9.91% and ~9.88%, respectively.

Figure 5: Top 10 Shareholders

Source: Analysis by Kalkine Group

Key Metrics:

Revenue took a recent dip due to weaker demand across multiple mobility markets as customers began idling operations in mid-year in response to the COVID-19 pandemic. Considering COVID-19 disruptions, DAN has maintained relatively sustainable topline growth compared to its peers. The current ratio has declined marginally while maintaining prudent inventory control.

Figure 6: Key Financial Metrics

Source: Analysis by Kalkine Group

Outlook:

Latest Industry Update: The currently suppressed end-market inventory levels are expected to drive high consumer demand. DAN is well-poised to leverage cyclical growth opportunities as key risks and challenges facing the mobility industry subside.

Combating High Material Costs: DAN’s manufacturing facility in Sweden shall deliver high cost and operational efficiencies. The US$50 million projects have received US$10.7 million in funding support from the Swedish business development community. The facility shall amplify DAN’s ability to fully integrate e-Propulsion systems and clean-energy technologies across all mobility markets.

Revised Guidance: DAN expects sales to range between $8.8 billion to $9 billion in FY21 with corresponding adjusted EBITDA of $815 million - $875 million. Moreover, the implied adjusted EBITDA margin is expected to clock circa 9.5%, operating cash flows to stand at ~5% of sales and adjusted free cash flow to clock ~1% of sales.

Key Risks:

Supply-Chain Constraints: With the current global supply chain disruptions in place, the industry’s production forecasts for the remainder of FY21 and FY22 are expected to shred.

Labor Shortages: The labour shortages seem to coincide with elevated unemployment rates. Labour shortages at specific facilities have constrained consumer production.

Rising Commodity Cost: Margins have shrunk sharply due to the global semiconductor chip shortage and increased investment towards supporting the electrification strategy.

Valuation Methodology: EV/Sales Multiple Based Relative Valuation (Illustrative)

Stock Recommendation:

DAN has delivered 3-month and 6-month returns of ~-1.802% and ~-15.241%, respectively. The stock is trading below the average of the 52-week low price of US$18.60 and the 52-week high price of US$28.44, indicating an accumulation opportunity. The stock has been valued using the EV/Sales multiple-based illustrative relative valuation method and arrived at a target price of low double-digit (in % terms). The company might trade at a slight discount compared to its peers’ average EV/Sales (NTM trading multiple), considering supply chain constraints, rising input costs, and labour shortages. For valuation, a few peers like Modine Manufacturing Co (NYSE: MOD), LCI Industries (NYSE: LCII), Superior Industries International Inc (NYSE: SUP), and others have been considered. Considering the continuous involvement in the company’s electrification strategy, potential strategic efficiency from Sweden manufacturing facility, prudent inventory management, and potential upside as indicated by the valuation, we give a “Buy” recommendation on the stock at the closing market price of US$21.80, down by ~2.42%, as of 13 December 2021.

DAN Daily Technical Chart (Source: REFINITIV)

Note 1: The reference data in this report has been partly sourced from REFINITIV

Note 2: Investment decisions should be made depending on the investors’ appetite on upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the analysis has been achieved and subject to the factors discussed above alongside support levels provided.

Technical Indicators Defined: -

Support: A level where-in the stock prices tend to find support if they are falling, and downtrend may take a pause backed by demand or buying interest.

Resistance: A level where-in the stock prices tend to find resistance when they are rising, and uptrend may take a pause due to profit booking or selling interest.

Stop-loss: It is a level to protect further losses in case of unfavourable movement in the stock prices.

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