On Oct 5, 2013, we upgraded TRW Automotive Holdings Corp. to a Zacks Rank #1 (Strong Buy).
Why the Upgrade?
TRW generated positive earnings surprise in each of the last 4 quarters with a positive earnings surprise of 10.99%. In the second quarter of 2013, the company’s earnings increased 17.4% to $2.02 per share from $1.72 (all excluding special items) a year ago and exceeded the Zacks Consensus Estimate of $1.70. Net earnings (excluding special items) went up 14.0% to $252 million from $221 million in the second quarter of 2012.
Since then, the Zacks Consensus Estimate for TRW’s 2013 earnings per share increased 3 cents to $6.64, up 8.14% over 2012. Further, the estimate for 2014 also increased 3 cents to $7.66, up 15.41% from the prior year.
The solid performance by TRW in second-quarter 2013, a strong cash flow and expectation of better performance in the future prompted Standard & Poor’s (S&P) Ratings Services to raise the company’s credit rating to ‘BBB-’ from ‘BB+’ in Sep 2013
TRW is globally recognized as one of the largest and most diversified suppliers of automotive systems, modules and components to OEMs and the related aftermarket. The company commands about one-fifth of the world market for airbags, seatbelts and related electronics.
However, we note that the broader economic and challenging pricing environment along with high customer concentration remain headwinds. TRW expects market conditions in Europe to remain challenging in the near term.
For full year 2013, TRW anticipates production of 16.1 million units in North America and 18.6 million units in Europe. Based on these production levels, the company’s first half performance and expectations for foreign currency exchange rates, revenues for the year are expected in the range of $16.8 billion to $17.0 billion, with $4.1 billion expected in the third quarter.
Other Stocks to Consider
Some other stocks worth considering in the original auto and truck business are Allison Transmission Holdings, Inc. (ALSN - Snapshot Report), Denso Corp. (DNZOY - Snapshot Report) and Fuel Systems Solutions, Inc. (FSYS - Snapshot Report). All these stocks carry a Zacks Rank #1 (Strong Buy).