* Q1 outlook: solid EU car production recovery (+10% y-o-y) and early summer tyre season to push earnings
* EU suppliers trade in line with US suppliers but 15% above historical average multiples; we think it is time for re-positioning in the sector
* Our top picks are Michelin and Faurecia (upgrade both to OW from N); we confirm our UW ratings on Valeo and Elring; cut Pirelli to N from OW; and maintain our ratings for Nokian (N), Continental (OW) and Leoni (OW)
* We prefer Continental and Michelin over Pirelli: Seeing slowing demand in LatAm and a mix component that can hardly surprise on the upside, we are 10% below Pirellis’ 2015 consensus EPS; we downgrade the name to N from OW and shift our preference to Michelin (upgrade to OW from N) to participate in the ongoing recovery in European premium/US truck RT tyre volumes. We like Continental and think that its 2014 earnings guidance is too cautious due to very conservative raw material price assumptions.
* Consensus revisions – positive on Faurecia, negative on Valeo: We see Valeo at record capex this year, which results in almost no FCF generation. Being 10% below 2015 consensus EPS, we remain UW. We have become a fan of the Faurecia Seating story, which should kick off in 2015e and upgrade our rating to OW from N.