Goldman Sachs upgraded ArvinMeritor (ARM ) to in-line from underperform, explaining that the auto parts company has a more favorable outlook on risks such as its restructuring and cash flow.
Analyst Robert Barry says the old rating had been based on ArvinMeritor's restructuring-related risk, weakening 2005 free cash flow, and severe Employment Benefits headwind in 2006. But ArvinMeritor shares have been down 25% in the last three months, while the stock is trading about in line with supplier peers on most of Barry's key valuation metrics. Meanwhile Street earnings per share estimates are down 27% in the past three months, so Barry thinks expectations are lower, limiting the risk of further downward estimate revisions. As a result he thinks that headwind over the benefits is likely priced in to the stock's value already.