ADIENT PLC $74 (New York symbol ADNT; Manufacturing sector; Shares outstanding: 93.7 million; Market cap: $6.9 billion; Takeover Target Rating: Highest; Dividend yield: 1.5%; TSINetwork Rating: Average; www.adient. com) is the world’s largest maker of automotive seats for both passenger cars and commercial vehicles. It also makes other interior components, including instrument panels, floor consoles and decorative trim.

Adient is a spinoff of Johnson Controls International plc (symbol JCI on New York—see box below). That split was completed on October 31, 2016, when Johnson Controls gave its shareholders one Adient share for every ten of their JCI shares. Adient is incorporated under the laws of Ireland.

The spinoff now has 237 manufacturing plants and operations in 33 countries. It produces over 25 million automotive seats annually, with a global market share above 33%.

Johnson Controls

• Merged last year with Tyco, the No. 1 provider of fire and security systems

• The merger added to its global building-efficiency offerings—including heating, air conditioning, and control systems

Adient gets about 31% of its revenues from the Americas, 26% from Europe, 37% from China, and 6% from the Asia Pacific region. All the world’s major automakers are its customers.

Earlier this year, the company entered into a collaboration with Boeing to explore the possibility of providing aircraft seating and interior products to that firm. Adient is particularly interested in entering the complex, but very profitable and growing market for business-class seats.

In its fiscal year ended September 30, 2017, Adient’s revenue fell 3.4%, to $16.2 billion from $16.8 billion in 2016. However, earnings per share rose 9.9%, to $9.35 from $8.51. That’s because the company successfully cut its costs.

Adient’s long-term debt of $3.4 billion is a somewhat high 49% of its market cap. It holds cash of $709.0 million, or $7.57 a share.

Activist investor Blue Harbour Group LP recently became Adient’s largest shareholder when it acquired a 6.2% stake in the company.

Blue Harbour believes that there is lots of room for Adient to boost its profit margins. This includes reworking its network of 19 joint ventures in China; it currently has a big 45% share of China’s automotive seating market. The joint ventures are with its customers. Blue Harbour thinks that Adient could consolidate these partnerships in order to realize manufacturing efficiencies, reduce overhead, and increase profits. It also feels that complex joint-venture accounting conceals considerable cash at those entities.

The activist also wants Adient to boost shareholder value by adding to its current $250 million share buyback plan; in addition, it wants the company to sell its less profitable operations and make complementary acquisitions.

Adient operates in a cyclical industry, but vehicle sales worldwide continue to rise. That’s especially so in Europe and South America, where sales are rebounding strongly. What’s more, booming SUV and crossover sales are providing Adient with higher revenue per vehicle. A successful entry into the aviation market would also let the company diversify beyond the automotive market.

Adient’s shares are up almost 50% since its spinoff. Even so, the stock trades as just 7.3 times the company’s forecast 2018 earnings of $10.10 a share. In April 2017, Adient began to pay a quarterly dividend of $0.275 a share. The stock now yields 1.5%. Its $7.1 billion market cap makes it a reasonably affordable acquisition.

Adient rates Highest in our Takeover Target Rating. The stock is a buy.