Morgan Stanley initiated coverage on Dauch with a Buy recommendation and set a price objective of $10.35, or 760 pence. The bank highlights margin improvement and deleveraging potential that could flow from the merger of American Axle & Manufacturing and Dowlais Group.
The tie-up produces an estimated $11 billion revenue Tier 1 supplier and positions the combined business as the sixth-largest supplier in North America. Dowlais is a significant component of the merged entity, representing roughly half of combined sales and EBITDA.
On the question of cost savings, Morgan Stanley views the company’s $300 million targeted run-rate of cost synergies as conservative. By examining precedent supplier mergers - cited examples include deals such as Faurecia and HELLA, and Schaeffler and Vitesco Technologies - the bank estimates the realistic potential could be nearer $500 million when measured against its forecast fiscal 2026 EBITDA of $1.3 billion. Morgan Stanley also notes additional upside from cross-selling opportunities between the combined franchises.
The brokerage expects fiscal 2026 to be a transition year. It warns first-quarter results may look weak, pointing to a slow January and the timing of the deal close as constraining factors. Morgan Stanley’s fiscal 2026 forecasts sit at the low end of company guidance.
Looking beyond the transition, the bank projects EBITDA margin expansion toward 14% in fiscal 2027 and anticipates net debt to EBITDA will decline to 2.7x in fiscal 2027 from an expected 3.1x in fiscal 2026 as synergies and operational improvements are realized.
In valuation terms, Morgan Stanley’s model pegs Dauch at roughly 4.5x fiscal 2027 EV to EBITDA on its estimates, beneath the comparable North American peer group at about 5.6x. To arrive at its $10.35 price target, the bank applies a 5.0x multiple to fiscal 2027 EV to EBITDA.
The bank also argues the combined product and geographic mix leaves the group well positioned for the current U.S. auto cycle, and particularly able to benefit if demand shifts back toward internal combustion engine vehicles. Customer diversification and broader geographic exposure are cited as additional strategic benefits.
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