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Here's Why Investors Should Dump American Axle (AXL) Now

American Axle & Manufacturing Holdings, Inc. AXL has been losing the sheen of late. A look at the company’s price trend reveals that the stock did not perform well in the last quarter. American Axle’s shares have lost 32% compared with the industry’s 2% growth over the last three months.

Let’s take a look at the factors, which are marring the company’s performance.

Key Concerns

American Axle has been bearing the brunt of rising manufacturing costs and lower global production volumes, which is denting the firm’s margins. In second-quarter 2019, American Axle’s top and bottom lines were lower than both the Zacks Consensus Estimate and the previous year quarter figures. Adjusted EBITDA for the second quarter of 2019 was $266 million compared with $347.9 million in the second quarter of 2018. Adjusted EPS for the quarter was $0.55 compared with $1.23 in the year-ago quarter.

Disappointing last quarter’s result along with bleak outlook have dampened investors’ sentiments. Notably, for 2019, the company expects sales of $6.9-$7 billion, down from the previously mentioned $7.3-$7.4 billion. Further, adjusted EBIDTA is now projected to be $1.05-$1.10 billion, down from the previous guidance of $1.2-$1.25 billion.

High operating and manufacturing expenses is denting American Axle’s margins. Increased manufacturing costs due to material freight and inflationary pressures along with program launch costs are negatively impacting American Axle’s profit margins and the trend is likely to continue. Restructuring and acquisition-related costs along with research and development expenses are other headwinds.

Contracting demand for passenger cars in North America along with reduced light vehicle production in Europe is adversely affecting the sales of American Axle. Amid industry headwinds, American Axle reduced its estimated 2019 new business backlog view by $100 million.

Escalating U.S.-Sino trade tensions is likely to weigh on the stock.  As we know, in a bid to expand its global footprint, American Axle had formed a joint venture in China to to build driveline systems. Increasing uncertainty with the U.S.-China trade war can further dampen the company’s prospects in the country.

American Axle’s major OEM customers are constantly demanding concessions in the form of lower prices. While the firm faces pressure from OEMs to reduce prices, it is unable to pass on any increase in raw material costs to OEM customers, which is weakening its financials further. As it is, the firm’s high leverage of nearly 70% restricts American Axle’s financial flexibility to tap on to the growth opportunities.

Amid such headwinds, we believe that its best for the shareholders to steer clear from the Zacks Rank #5 (Strong Sell) stock right now.

Stocks to Consider

Meanwhile, investors can consider better-ranked stocks in the Auto-Tires-Trucks sector like Lithia Motors LAD, Douglas Dynamics, Inc. PLOW and SPX Corp. SPXC. While Lithia Motors currently sports a Zacks Rank #1 (Strong Buy), Douglas Dynamics and SPX carry a Zacks Rank of 2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Lithia Motors has an expected earnings growth rate of 12.8% for 2019. The company’s shares have gained 70.5% year to date.

Douglas Dynamics has an expected earnings growth rate of 11.7% for 2019. The company’s shares have risen 26% year to date.

SPX has an estimated earnings growth rate of 22.7% for the current year. Its shares have gained 45.6% year to date.

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