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The auto industry is smoking hot. Autoliv Inc. (ALV - Analyst Report), which makes automobile safety systems, reported a record third quarter in October. Even though this Zacks #1 Rank (strong buy) has soared off its March 2009 low, shares are still trading at an affordable 12.3x forward estimates.

On Nov 8, Autoliv announced it was building an airbag inflator plant at its Taubate location near Sao Paulo Brazil in response to new Brazil airbag rules.

Brazil has tightened its safety laws, requiring that all new vehicles have driver and passenger airbags by 2013. By 2014, all vehicles sold in Brazil must have front airbags.

Currently, Autoliv ships the inflator part of the airbag from its plants in Europe and the United States. But the inflator makes up about half the cost of the airbag. Demand will be strong enough that it will be cheaper to simply make the inflator directly in Brazil.

Autoliv has 35% of the total global inflator market and manufactures inflators in 6 countries - with Brazil to be the 7th.

Automobile sales are surging in Brazil as the middle class expands. Brazil is on pace to become the 4th largest automotive market this year, replacing Germany.

Autoliv Beat By 24% in the Third Quarter

On Oct 26, Autoliv reported its third quarter results and easily beat the Zacks Consensus Estimate by 29 cents as it saw its best third quarter in its history. Earnings per share were $1.51 compared to the consensus of $1.22 per share.

Sales surged 31% to $1.74 billion as organic sales jumped 23% in that period. Global light vehicle production grew only 13% in that same period so Autoliv's sales outpaced it.

Outlook for the Fourth Quarter is Bullish

Autoliv expects the sales growth to continue in the fourth quarter as it forecasts consolidated net sales to jump by 15% compared to the fourth quarter of 2009. Organic sales are expected to climb 12% in that period.

For the full year, that would be sales growth of 40%.

Zacks Consensus Estimate Rise

Analysts continue to see further upside in 2010. The 2010 Zacks Consensus has jumped to $6.18 from $5.66 in the last 60 days.

This is expected earnings growth of 390%. Autoliv made just $1.26 in 2009.

But they definitely see a slowdown in the growth in 2011. The 2011 Zacks Consensus has moved up to $6.67 from $6.04 in the last 60 days but this is earnings growth of just 7.9%.

ALV Still a Value Stock

Despite shares being at new 5-year highs, there is still value in Autoliv.

It's price-to-book ratio is well within the value range of under 3.0 at 2.4. The company also has an attractive price-to-sales ratio of about 1.0.

Autoliv's outstanding return on equity (ROE) of 21.2% is in line with its peers.

As an added bonus for shareholders, Autoliv pays a dividend currently yielding 1.9%.

Tracey Ryniec is the Value Stock Strategist for Zacks.com. She is also the Editor in charge of the market-beating Zacks Value Trader service. You can follow her at twitter.com/traceyryniec.

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