Jefferies Has Buy Rating On Dana Holding Corp. (DAN)

Jefferies & Co. has a Buy rating and a $23 price target on shares of Dana Holding Corp. DAN after the company held a dinner with sell-side analysts. In a note to investors, Jefferies writes, "Dana held a sell-side dinner on Wednesday night that included new CEO, Roger Wood, and CFO, Jim Yost. This note is a brief recap of the largely qualitative meeting. In addition to meeting new management, we had a chance to follow up on some of the commercial vehicle margin questions that arose out of the 1Q earnings call. We think this is the key investment controversy for the stock over the next several quarters." Jefferies goes on to say, "Many investors may recall that the first four questions on DAN's 1Q earnings call focused on margin leverage (or lack thereof) in the company's CV division. This line of questioning carried over into Wednesday night, with a substantial part of the discussion focused on this topic. Management reminded us that the commercial vehicle space is a little different than light-duty in that production runs are shorter, products tend to be highly customized, and SKUs generally have a long tail (with declining rates of margin), but that the industry historically lacked sufficient pricing discipline. We think a few things are likely going forward: (1) As referenced briefly on the 1Q call, we believe DAN will cut down its product proliferation dramatically, limiting the SKU tail; (2) It seems likely that the company will look to consolidate an equally proliferated supplier base to drive down purchasing costs; this is by no means a revolutionary concept, but something that DAN appears to have not addressed historically; and (3) As Class 8 production schedules cross over 280k to 300k annualized units, we got the sense that DAN will probably be reluctant to add incremental capacity without revisiting customer pricing. We've seen this strategy work before. And while no one likes to use the dreaded “A word” (allocation), it can be a powerful lever to restore market pricing to contracts that might have been made below-market." Shares of DAN closed at $17.75 yesterday.