BofA ML upgrades GKN to 'buy' from 'neutral'

7th Dec 2016 13:34

(ShareCast News) - GKN got a boost as Bank of America Merrill Lynch upgraded its stance on the stock to 'buy' from 'neutral' and upped the price target to 365p from 350p."As we move into 2017, we believe GKN provides one of the strongest earnings growth profiles in the sector, through both organic improvement and restructuring," Merrill said, adding that the valuation has been weighed on by deteriorating sentiment in aerospace & autos end markets.However, the bank said the stock's discount to peers has grown too wide and is now attractive. It noted the shares are now trading a 33% discount to the benchmark Stoxx 600 index 12 months forward versus its 10-year average discount of 14%."We think this valuation discount is extreme, and is an attractive entry point in the context of the strong earnings growth we expect relative to the rest of the sector."BofA ML said it sees top-line deceleration but bottom line acceleration. It said organic growth in Aerospace should remain low single digit organic 2017-18, as military improves and civil deteriorates. However, it sees a stronger earnings profit as the company continues to improve profitability on A350XWB and Fokker margins."Despite slower IHS' production outlook, Driveline should continue to outperform the market, in our view, and earnings should benefit from the group-wide restructuring programme and non-repeat of exceptional cost."At 1420 GMT, the shares were up 3.5% to 315.50p.