- Shares of Meritor Inc. look significantly undervalued in light of strengthening liquidity, increasingly efficient operations, robust free cash flow growth, and strength in the pipeline.
- Fair value: $17.50/share, assuming 66% 5-year growth rate, 11% discount rate. FV represents a greater than 38% upside from the current price.
- $210m equity repurchase program expected to finish by the end of fiscal year 2016. $71m of Free Cash Flow in Q3, compared to $9m in Q2.
- Improving efficiency of Meritor's capital structure: the Company looks to reduce debt by $400m by the end of fiscal year 2016.
- Opportunity to purchase growth at a discount: forward looking PEG ratio of 0.30 versus 1.32 industry average, and 0.34 P/S ttm versus 0.61 industry average.