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On Sep 12, 2013, we maintained our Neutral recommendation on Autoliv Inc. (ALV - Analyst Report). We appreciate the company’s improved second-quarter 2013 performance. Autoliv has a stable market share in both airbag modules and seat belts in North America, Europe and Asia. The company also aims to tap the huge potential offered by low-cost countries. However, we are concerned about the stiff competition and its high dependence on some customers.

Why the Reiteration?

On Jul 19, 2013, Autoliv reported second quarter 2013 earnings of $1.44 per share, beating the Zacks Consensus Estimate by 5 cents. Earnings improved 8.3% from $1.33 per share reported in the second quarter of 2012 on the back of lower effective tax rate and favorable interest expense.

Consolidated revenues rose 5.2% to $2.19 billion, beating the Zacks Consensus Estimate of $2.17 billion. The year-over-year improvement in revenues was driven by increasing focus on safety by leading Chinese car manufacturers.

Following the release of the second-quarter results, the Zacks Consensus Estimate for fiscal 2013 increased marginally by 0.2% to $5.68 per share. Moreover, the Zacks Consensus Estimate for fiscal 2014 rose 0.8% to $6.31 per share. Currently, the company retains a Zacks Rank #3 (Hold).

Autoliv benefits from its expansion in the low-cost countries such as Romania and China. The company has opportunities in these countries due to the rising demand for automobile protection products resulting from the strong demand for light vehicles in these regions. In addition, the cost of production in these countries is lower than that in higher-cost countries.

Autoliv is benefiting from its presence in China and focuses on providing automotive safety systems to the Chinese auto manufacturers. The company recently announced an investment of $50 million to build a textile center in China, which will fulfill the rising demand for airbags in the region.

However, Autoliv faces challenges from customer concentration. General Motors Company (GM - Analyst Report) is the largest customer of Autoliv and commands 15% of total sales in 2012. Ford Motor Co. (F - Analyst Report) and Renault-Nissan are next in line and each of them account for 11% of sales. The top 5 customers represent about 54% of sales and the top 10 represent 83% of sales. Thus, the loss of any key customer could significantly affect the company’s earnings.

Other Stocks to Look For

American Axle & Manufacturing Holdings Inc. (AXL - Analyst Report), a Zacks Rank #1 (Strong Buy) stock, is currently performing well in the original auto and truck industry.

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