(5 Risky Auto Supplier Stocks story updated to reflect IBISWorld's risk and market analysis of various auto supplier sectors)
NEW YORK (TheStreet) -- U.S. auto suppliers have had their share of pain and bankruptcies to contend with in recent years amid the steep downturn in U.S. automotive production and bankruptcies of large customers such as GM and Chrysler.
While auto suppliers as a group may not be completely out the woods yet, things certainly do like they're picking up, with Visteon (VSTNQ), exiting bankruptcy protection at the beginning of October and September auto sales up almost 29% from a year ago.
"In North America, automotive suppliers have been hit hard over the past few years -- volatile commodity prices, plunging production volumes, movement from larger to smaller vehicles and the historic bankruptcies of two OEMs," A.T. Kearney partner Dan Cheng said. "However, outside of the notable supplier bankruptcies, many suppliers were able to weather the storm through significant capacity reductions, restructuring and policy changes."
"In particular, Tier 1 suppliers were able to improve their working capital position over the past two years by significantly increasing their days payables to Tier 2 suppliers -- bringing in line their payment terms with the payment terms of their customers -- the OEMs. ""Going forward, one risk is the speed of the industry recovery. As OEMs increase production to meet increased demand, suppliers will need capital to add capacity -- and also be convinced that the time to invest in additional capacity, after the drastic reductions of last year, is now." That said, TheStreet has compiled a list of auto suppliers who -- according to the Altman Z-Score combination of five ratios, as researched though analytical tool I-Metrix -- face the risk of bankruptcy in the not so distant future, despite the fact that they have seen their scores improve over the last fiscal year. All these auto suppliers have Z-Scores of 1.81 or less, which according to I-Metrix, indicate a "very good chance" the businesses could go bankrupt in the coming year. Included in the list is Visteon, which actually has been in bankruptcy protection, but iss expected to emerge from it in early October. Also provided in the following pages are Moody's ratings outlooks for each company and assessments of the companies' creditworthiness or likelihood of defaulting. Typically, companies that receive ratings in the range of Aaa to Baa3 are considered to be investment grade, while those that receive assessments in the range of Ba1 to C are considered to be high-yield or non-investment grade or "junk." Thus, if a company is rated B1, Bloomberg would say the rating is four notches below investment grade. If a company is rated B3, Bloomberg would say the rating is six notches below investment grade. Read on for five (excluding Visteon) auto supplier stocks that are still at risk of going bankrupt in the coming year according to the Altman Z-Score on I-Metrix. >>>Also: Automotive Short Squeezes for 2010
Select the service that is right for you!COMPARE ALL SERVICES
- $2.5+ million portfolio
- Large-cap and dividend focus
- Intraday trade alerts from Cramer
- Weekly roundups
Access the tool that DOMINATES the Russell 2000 and the S&P 500.
- Buy, hold, or sell recommendations for over 4,300 stocks
- Unlimited research reports on your favorite stocks
- A custom stock screener
- Upgrade/downgrade alerts
- Diversified model portfolio of dividend stocks
- Alerts when market news affect the portfolio
- Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
- Real Money + Doug Kass + 15 more Wall Street Pros
- Intraday commentary & news
- Ultra-actionable trading ideas
- 100+ monthly options trading ideas
- Actionable options commentary & news
- Real-time trading community
- Options TV