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On Jul 15, we maintained our Neutral recommendation on Tenneco Inc. (TEN - Analyst Report). Though we are bullish about the company’s focus on winning business awards and maximizing the efficiencies in the manufacturing processes, we remain concerned about its high customer concentration and relatively weak demand for high-margin aftermarket parts.

Why the Reiteration?

On Apr 29, Tenneco reported a 9.1% increase in 2013-first-quarter adjusted earnings per share to 72 cents from 66 cents a year ago, surpassing the Zacks Consensus Estimate by 7 cents.

Revenues increased marginally to $1.90 billion, beating the Zacks Consensus Estimate of $1.84 billion. The year-over-year increase in revenues was attributable to higher revenues from Clean Air division, partially offset by decline in revenues from Ride Performance.

Following the release of the first-quarter results, the Zacks Consensus Estimate for 2013 increased 0.3% to $3.66 per share. However, the Zacks Consensus Estimate for 2014 went down 0.2% to $4.46 per share. Currently, the company carries a Zacks Rank #3 (Hold).

The Emission Control segment of the company will have favorable impacts from tighter emission regulations through 2015. The global market share of the segment reached 10%. Tenneco expects to achieve a 5-year average compound annual OE revenue growth rate of 18% to 20% through 2014 with the implementation of emission regulations.

In addition, Tenneco’s image has improved given the numerous business awards received in the recent past. The company has received the 2012 supplier innovation award from John Deere for developing an integrated selective catalytic reduction (SCR) and mixing system. The facilities of Tenneco located in Gliwice, Poland and Ligonier, Indiana won the World Excellence Awards from Ford Motor Company (F - Analyst Report).

Tenneco remains under pressure as automotive retailers like AutoZone Inc. (AZO - Analyst Report) demand heavy pricing concessions. In addition, the company has high customer concentration, as its top 10 aftermarket customers constitute 50% of its total aftermarket sales.

Other Stocks to Consider

Currently, Visteon Corp. (VC - Snapshot Report) is performing well in the same industry where Tenneco operates. The stock holds a Zacks Rank #1 (Strong Buy).

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