Why This Analyst Is Downgrading Auto Stocks CarMax, American Axle, Sonic Automotive, Says Supply Chain Issues 'Likely To Persist Into 2023'

On Friday, one auto analyst downgraded the stocks of three auto dealers and suppliers as auto market pressures persist.

The Analyst: Bank of America analyst John Murphy issued the following three auto industry ratings changes:

• American Axle & Manufact. Holdings, Inc. AXL downgraded from Buy to Neutral, price target cut from $16 to $13.
• CarMax, Inc KMX downgraded from Neutral to Underperform, price target cut from $146 to $100.
• Sonic Automotive Inc SAH downgraded from Neutral to Underperform, price target cut from $82 to $71.

Related Link: 4 Rivian Analysts On Sales Growth, Widening Losses: Is EV Maker Back On Track After 'Horror Show' IPO?

The Takeaways: In the downgrade note, Murphy said automakers don't appear to be in any hurry to ramp production given they are generating record profits. Murphy said automakers are proceeding with caution given profits for automakers and dealers could tank as volumes recover.

"As we anticipated in our Year Ahead report, 2022 is not the stabilization/inflection year many had hoped for, but what is surprising is that supply chain issues are likely to persist into 2023," Murphy said.

Related Link: Here's What Warren Buffett Thinks About Tesla And Elon Musk

Unfortunately, Murphy said supply chain disruptions will likely limit new vehicle supply and continue to weigh on CarMax same-store sales, revenue and earnings growth for at least the next few years. Likewise, he said lack of used vehicle supplies could hinder Sonic's focus on its EchoPark used car business and cause Sonic shares to underperform other auto dealers.

Murphy also said American Axle has attractive fundamentals but limited valuation upside in the challenging environment.

Benzinga's Take: Murphy's three downgrades are bad news for the impacted stocks, but he still sees plenty of opportunities among dealers, suppliers and automakers. Despite the downgrades, Murphy remains bullish on Buy-rated major U.S. automakers General Motors Company GM and Ford Motor Company F, although he reduced his price target for GM from $95 to $90 on Friday.

Photo via Shutterstock.