The automotive industry has made a solid comeback thanks to the resilience in consumer purchases and easing inflation figures. Moreover, with the recent month’s strength, the outlook for the remainder of the year remains positive into 2024.
But before delving into the fundamentals of these stocks, let’s look at the catalysts driving the automotive sector’s growth.
As supply chain snags and inflation gradually ease, the automotive sector has seen a rise in sales for the second quarter of this year. Auto sales in the United States grew 16.8% from April through June to over 4.1 million, underscoring significant pent-up demand.
Recently, Cox Automotive reported that U.S. new-vehicle sales volume reached nearly 1.30 million units in July, indicating an increase of more than 15% year-over-year. Improving consumer sentiment, higher inventory levels, and growing fleet deliveries continue to drive new-vehicle sales higher year-over-year in the U.S.
According to ABI Research, global vehicle sales are expected to increase by 3.3% in 2024 and reach the previous high of more than 90 million units in 2025. In addition, the rise of Electric Vehicles (EVs) is one of the most significant trends in the automotive space.
EV sales in the United States have surged 48.4% year-over-year, with 300,000 new EVs sold in the second quarter of 2023. With the government pushing for electric mobility, imposing stricter emission norms, and emerging battery production facilities, the nation is expected to welcome 1 million new EVs to hit the road in 2023, fueling the budding used EV market further.
Furthermore, the overall EV market is projected to reach around $1.72 trillion by 2032, growing at a CAGR of 23.1%.
The industry’s global reach and diverse offerings amplify its investment appeal. Beyond cars, the auto sector encompasses a wide array of services, from financing to aftermarket products. The industry’s evolving landscape invites investors to tap into established automakers and emerging players in the EV and self-driving space, offering a blend of enduring appeal and futuristic promise.
The global auto parts market is projected to be worth $755 billion by 2026. Moreover, between 2023 and 2032, it is expected to attain a growth rate of 7.5%.
To that end, let’s discuss the above-mentioned stocks in detail:
Valeo SE (VLEEY)
Headquartered in Paris, France, VLEEY designs, manufactures, and sells components, integrated systems, modules, and services for the automotive sector. The company operates through four segments: Comfort & Driving Assistance Systems; Powertrain Systems; Thermal Systems; and Visibility Systems.
On June 29, VLEEY launched Canopy, the first wiper blade designed to reduce CO2 emissions, making a step for the environmental sustainability issue. The wiper packaged in a cardboard box enables a CO2 emission reduction of 61% compared to a Valeo Flat Blade product representative of the most commercialized wiper blades in the European market. This strategic offer responds to an increasing demand for sustainability among consumers.
On May 29, the company and DiDi Autonomous Driving announced a joint strategic cooperation and investment agreement to develop safety solutions for L4 robotaxis. The partnership is expected to contribute to the company’s commitment to offering solutions for smart, safe, and affordable mobility to its passengers, thereby accelerating the commercialization of autonomous driving technology.
VLEEY’s sales increased 19% year-over-year to €11.21 billion ($12.19 billion) for the fiscal half-year that ended June 30, 2023, while its EBITDA rose 17.2% from the year-ago value to €1.30 billion ($1.43 billion).
Its operating margin improved 40.7% year-over-year to €363 million ($398.07 million). The company’s net attributable income amounted to €119 million ($130.49 million) compared to a net loss of €48 million ($52.64 billion) in the prior-year quarter.
Analysts expect VLEEY’s revenue for the current quarter (ending September 2023) to increase 19% year-over-year to $6.24 billion. For the fiscal year 2023, its EPS and revenue are expected to be $0.93 and $24.62 billion, registering year-over-year growth of 85.1% and 15.9%, respectively.
Over the past three years, its revenue and total assets have grown at CAGRs of 9.2% and 4.8%, respectively. Also, its EBITDA has increased at a 24.6% CAGR over the same period.
VLEEY’s trailing-12-month ROCE of 10.96% is 6.3% higher than the industry average of 10.31%. Likewise, its trailing-12-month asset turnover ratio of 1.07x is 7.6% higher than the 1x industry average.
The stock has gained 19.7% year-to-date to close the last trading session at $10.56.
VLEEY’s solid prospects are reflected in its POWR Ratings. The stock has an overall rating of B, translating to Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.
It has an A grade for Value and a B for Stability. Out of the 60 stocks in the A-rated Auto Parts industry, it is ranked #23. To see the other ratings of VLEEY for Growth, Momentum, Sentiment, and Quality, click here.
Standard Motor Products, Inc. (SMP)
SMP is a leading manufacturer and distributor of automotive parts for the automotive aftermarket industry through three segments: Engineered Solutions; Vehicle Control; and Temperature Control. It offers a wide range of products, such as electronic ignition components, sensors, throttle bodies, and temperature control system components under various well-known brands.
On August 2, backed by its strong cash flows, the company’s Board of Directors approved payment of a quarterly dividend of 29 cents per share on the common stock outstanding, payable on September 1, 2023.
SMP’s annual dividend of $1.16 yields 3.1% at the current price level, while its four-year average yield is 2.09%. Its dividend payouts have increased at a 16.4% CAGR over the past three years and a 6.9% CAGR over the past five years.
On July 26, the company released 207 new part numbers in its July new number announcement. The latest release provides new coverage in 71 different product categories, and 78-part numbers for 2022 and 2023 model-year vehicles.
Jack Ramsey, Senior Vice President of Sales and Marketing, SMP®, stated, “With over 200-part numbers added this month, we’re proud to announce the expansion of the Standard® and Four Seasons® brands. From engine and vehicle system components to temperature control products, these new additions offer our partners a wide range of new and in-demand parts for countless repair solutions.”
During the second quarter that ended June 30, 2023, SMP’s net sales amounted to $353.07 million, while its gross profit increased 5.1% year-over-year to $101.27 million. Its non-GAAP earnings from continuing operations stood at $18.57 million or $0.84 per share in the same period. Also, the company’s net cash inflow from operating activities was $39.37 million versus the prior-year quarter’s cash outflow of $95.33 million.
In addition, as of June 30, 2023, its cash and total current assets came in at $23.02 million and $787.88 million, compared to $21.15 million and $762.44 million for the period ended December 31, 2022, respectively.
The consensus revenue estimate of $318.34 million for the fiscal fourth quarter (ending December 31, 2023) represents a 3.3% increase year-over-year. The consensus EPS estimate of $0.72 for the next quarter indicates a 3.9% year-over-year growth. The company has an impressive earnings surprise history, surpassing the consensus EPS estimates in three of the trailing four quarters.
Over the past three years, SMP’s EBIT and total assets have increased at CAGRs of 23.8% and 11.3%, respectively, while its levered free cash flow has grown at a 13.8% CAGR.
The stock’s trailing-12-month EBIT and levered FCF margins of 10.40% and 7.51% are 42% and 65.7% higher than the 7.33% and 4.53% industry averages, respectively. Likewise, its trailing-12-month ROTC of 9.58% is 60.9% higher than the 5.95% industry average.
SMP’s shares have gained 8.2% year-to-date to close the last trading session at $37.64.
It’s no surprise that SMP has an overall rating of A, which equates to a Strong Buy in our proprietary rating system. It has a B grade for Value, Stability, and Quality. Within the same A-rated industry, it is ranked #15.
In addition to the POWR Ratings we’ve stated above, we also have SMP’s ratings for Growth, Momentum, and Sentiment. Get all SMP ratings here.
Commercial Vehicle Group, Inc. (CVGI)
CVGI manufactures and sells components and assemblies for commercial vehicles, through its four operating segments: Vehicle Solutions; Electrical Systems; Aftermarket & Accessories; and Industrial Automation. Its offerings include robotic assemblies, electric vehicle assemblies, electrical wire harnesses, seating systems, mechanical assemblies, structures, plastic products, and more.
On April 6, the company announced the expansion of its global footprint, capacity, and capabilities with two new facilities in Morocco and Mexico, which are expected to be operational by the third quarter of 2023. Amid a rapidly growing electrification landscape, these plants should help CVGI meet the customer’s demand.
Harold Bevis, President and CEO of CVGI, commented, “Through strategic green-field projects like these, CVGI intends to remain at the forefront of the electrification industry and provide outstanding quality and customer service for both current and new customers.”
For the fiscal second quarter that ended June 30, 2023, CVGI’s revenues increased 4.5% year-over-year to $262.19 million, while its gross profit grew 75.5% from the prior-year quarter to $38.40 million. The company’s adjusted operating and net incomes improved 105.8% and 150.6% from the year-ago values to $16.66 million and $10.68 million, respectively.
CVGI’s adjusted EPS stood at $0.32, up 146.2% year-over-year. Additionally, adjusted EBITDA came in at $20.77 million, representing a 67.3% increase from the same period last year.
Street expects CVGI’s EPS for the third quarter (ending September 30, 2023) to increase 62.2% year-over-year to $0.24. Its revenue estimate of $254.42 million for the current quarter is expected to grow marginally year-over-year.
Additionally, its revenue and total assets have grown at CAGRs of 11.5% and 7.7% over the past three years, respectively. Likewise, its EBIT has improved at a 31.5% CAGR over the same period.
CVGI’s trailing-12-month levered FCF margin of 6% is 17.7% higher than the industry average of 5.10%. Also, its trailing-12-month asset turnover ratio of 1.91x compares with the 0.81x industry average.
Over the past nine months, the stock has surged 64.1% to close the last trading session at $10.01.
CVGI’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall A rating, translating to a Strong Buy in our proprietary rating system.
It also has an A grade for Growth and a B for Value, Sentiment, and Quality. Among the 60 stocks in the same industry, it is ranked #11. Click here to see the other ratings of CVGI for Momentum and Stability.
What To Do Next?
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VLEEY shares were trading at $10.58 per share on Wednesday afternoon, up $0.02 (+0.19%). Year-to-date, VLEEY has gained 21.99%, versus a 17.92% rise in the benchmark S&P 500 index during the same period.
About the Author: Shweta Kumari
Shweta’s profound interest in financial research and quantitative analysis led her to pursue a career as an investment analyst. She uses her knowledge to help retail investors make educated investment decisions. More…
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