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Bank of America analyst John Murphy downgraded a number of auto-related stocks on Friday as he advised hopes of an inflection point for supply chain problems are overly optimistic.
“What is surprising is that supply chain issues are likely to persist into 2023,” Murphy told clients. “Furthermore, automakers appear not to be in a rush to ramp production (they are generating record profits), and the macro overlay has become a greater risk.”
He added that COVID restrictions in China and an energy crisis in Europe further cloud both supply and demand sides of auto manufacturing. As such, he lowered volume and demand forecasts for the coming year, necessitating a reassessment of ratings on auto dealers and component manufacturers.
Among the downgrades, American Axle (NYSE:AXL) -3.65% was moved to Neutral from Buy, Sonic Automotive (SAH) +0.41% went to Underperform from Buy, and CarMax (KMX) +1.02% was dropped to Underperform from Neutral.
To be sure, Murphy remained constructive on many of the names over the longer term despite near-term downside risks moving his ratings.
“It should be noted that our ratings are relative and we still anticipate upside to all stocks in our coverage universe, especially as we anticipate a potential material upside run in the new vehicle cycle for years to come,” Murphy explained.
He added that while both automakers and dealers are generating record profits at trough volumes presently, he does not anticipate profits to “implode” as volumes recover.
Read more on the latest used auto price trends.
