(Bloomberg) -- Uncertainty about how US President-elect Donald Trump will apply tariffs has prompted an analyst at Toronto-Dominion Bank to take a dimmer view of two Canadian car-parts makers.
TD Cowen analyst Brian Morrison downgraded Linamar Corp. to hold from buy, in part because “tariff uncertainty is bound to remain an overhang at least early into Trump’s presidency.” He slashed his target on the stock to C$68 from C$89.
A weaker fourth-quarter outlook and a lack of clarity over how Linamar’s industrial segment will perform also informed Morrison’s decision to take a less bullish view. There’s still long-term value in the company, the analyst wrote, but it may become a “low multiple value trap” in the near term.
Morrison kept a buy rating on Martinrea International Inc. but chopped his price target to C$13 from C$18, citing a cloudy production outlook and the risk of US tariffs.
Linamar dipped 1.1% to C$59.65 while Martinrea tumbled nearly 10% to C$9.75 in Wednesday afternoon trading in Toronto.
During the election campaign, Trump pledged broad moves to restrict imports from other countries, including 60% tariffs on goods from China and 10% to 20% on other trading partners.
Linda Hasenfratz, Linamar’s executive chair, said tariffs would boost the cost of goods crossing the border — a particular problem for the auto industry, as some components travel several times before landing in a completed vehicle.
It’s up to the auto industry to persuade the Trump administration that North American collaboration, not tariffs, will make the US sector more globally competitive, Hasenfratz said.
Shares of both parts makers tumbled in 2018 as the US, Canada and Mexico entered contentious negotiations over a new regional trade deal, but they later rebounded.
“We’ve been there, done that, and it worked out for us just fine,” Martinrea Executive Chairman Robert Wildeboer told analysts, adding his team sees “good years ahead” once the company gets through trade challenges.
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