Meritor, Inc. (MTOR) is a globally recognized automotive parts supplier. However, the company has high customer concentration, which implies limited scope for margin expansion. Further, the recent turmoil in the global economy is expected to continue to mar its results.
We are also disappointed about Meritor's deteriorating cash flow. Although the company's fiscal fourth quarter profit was ahead of the Zacks Consensus Estimate by $0.19 per share, we remain concerned about its long-term outlook.
Our long-term Underperform recommendation on the stock indicates that it will perform lower than the broader market. Our $5.50 target price, 3.8X our 2012 EPS estimate, reflects this view.
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