Morgan Stanley’s car guru has a new under-the-radar pick that benefits from EV industry setbacks

Morgan Stanley has a stock in mind for investors looking to profit as the electric vehicle industry attempts to overcome some hurdles: Phinia . Analyst Adam Jonas initiated coverage of the auto components maker with an overweight rating and a $50 price target, calling the supplier spun off from BorgWarner in 2023 a “key beneficiary of the EV-reset.” PHIN 1D mountain Phinia shares rise after Morgan Stanley initiates coverage Shares rose 4% on Monday. Morgan Stanley’s the price target implies about 47% upside from Friday’s close. “We believe PHIN is the purest expression of our ‘ICE is Nice’ thesis that can generate substantial cash flows for longer than the market anticipates at ~4x EBITDA,” Jonas wrote in a Monday note. “With approximately 100% FCF conversion and an 8 to 9% combined cash return yield, PHIN is our preferred risk/reward amongst US suppliers.” Underpinning the firm’s “ICE is Nice” thesis is the expectation for a slower-than-expected adoption of battery electric vehicles, as the industry grapples with a slew of “underappreciated” geopolitical, environmental and economic hurdles, Jonas wrote. While the company is “far from a growth story,” it offers the second highest adjusted EBITDA margins within its coverage and highlighted its low net leverage, according to Jonas. “A stable top-line, above-peer margins, minimal leverage… this is a free cash flow story, augmented by cash return,” he wrote. Alongside these perks, Jonas noted Phinia trades at an attractive valuation. Not only does the company take longer than peers to spend its market capitalization on capital expenditures and research and development, it also looks cheapest within the firm’s U.S. supplier coverage on an enterprise value to fiscal year 2025 adjusted EBITDA basis. “During a period in US autos where peers continue to spend troves of investor capital on EV/AV expansions that have in many cases been rocky, we believe the market will ultimately give PHIN more credit for its capital discipline,” Jonas said.