The GUD Holdings Limited (ASX: GUD) share price is one of the worst performers on the S&P/ASX 200 (Index:^AXJO) (ASX:XJO) index as the stock has to be the most downgraded stock on the index today.
The GUD share price slumped a further 3.8% to $9.72 on Monday and if it finishes at this level, it will be the lowest close in more than three years for the automotive and water solutions company.
The stock is also the second worst performer on the ASX 200 at the time of writing and it's sandwich between the Credit Corp Group Limited (ASX: CCP) share price with its more than 6% plunge to $24.83, and the Bingo Industries Ltd (ASX: BIN) share price which is down 3.5% at $2.60.
Downgrade galore
GUD suffered a big drop on Friday after it posted a disappointing full year result and that prompted no less than three leading brokers to downgrade their recommendation on the stock.
Macquarie Group Ltd (ASX: MQG) cut its recommendation on the stock to "neutral" from "outperform" as GUD's auto accessories division was weaker than expected. Demand from its retail partners in the last quarter of the financial year fell with some retailers destocking its products.
It seems private label products are stealing market share, while higher cost of goods sold (COGS) is also hurting its bottom line.
"While valuation is undemanding (FY20e PE 14.6x is >15% discount to market), the Auto division was impacted by several issues that accelerated in 2H19 and are expected to persist near term," said Macquarie, which has a 12-month price target of $10.50 a share.
"GUD's Auto division is an attractive asset with solid organic and inorganic growth potential, but will take time to recover from here."
One has to wonder if there is any readthrough for auto parts retailers Super Retail Group Ltd (ASX: SUL) and Bapcor Ltd (ASX: BAP).
Cut to "sell"
Meanwhile UBS was less charitable on GUD. It slashed its recommendation on the stock by two full notches to "sell" from "buy" and lowered its price target by 23% to $9.50 per share.
Weakness in the auto business took the broker by surprise and UBS warned that the weaker exchange rate posed a risk to its FY20 earnings.
"While GUD's share price has been on a downward trend since May (-14%), we believe it will be difficult to grow EBIT in FY20E and downgrade our rating to Sell," said UBS.
The acceleration in the slowdown in the final quarter of the financial year also worried Citigroup enough for it to downgrade its "buy" rating on GUD to "neutral" and reduce its price target to $11.02 from $14.91 a share.
"While GUD appears to have done a good job a 'controlling the controllable', headwinds from home brands, subdued end-user demand, increased filter competition and reduced pricing power result in our caution," said Citi.
However, brokers noted that GUD have enough firepower to make an acquisition. This could be the simplest way for management to win back supporters – but that's only if it can find an earnings accretive takeover target.
