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Standard Motor Raised to Buy on Facility Closure & Acquisition
On Jun 15, 2016, Zacks Investment Research upgraded Standard Motor Products Inc. (SMP - Free Report) to a Zacks Rank #2 (Buy).
Why the Upgrade?
In May 2016, Standard Motor completed the acquisition of General Cable Corporation’s (BGC - Free Report) automotive ignition wire business for $71 million. The company believes that this acquisition will support its aim of becoming the top ignition wire supplier. Further, it will enhance the company’s bottom line within one year.
Standard Motor expects sales growth to be in the low single digits for 2016, in line with the industry average. It further anticipates that gross margin from Engine Management will improve year over year and that from Temperature Control will rise to 23%–24% from 21.9% recorded in 2015.
Standard Motor has also been focused on reducing cost of production, which will benefit its results. The company announced that it will be closing its facility in Grapevine, TX and relocating the diesel injection operations to existing facilities in Greenville, SC, which is the center of excellence for gas injection products. The Temperature Control operation will be shifted to Reynosa, Mexico, where the company has highly efficient operations in this field. It will also move its coil operation from Greenville to the main coil manufacturing location in Bialystok, Poland. The company expects to generate pre-tax savings of $6–$7 million after completion of the reallocation by 2017.
Standard Motor recorded a significant 37.5% improvement in adjusted earnings per share to 55 cents in the first quarter of 2016 from 40 cents earned in the prior-year quarter. Earnings also exceeded the Zacks Consensus Estimate of 48 cents. Total revenue rose 5% to $238.9 million from $227.6 million a year ago, surpassing the Zacks Consensus Estimate of $237 million.
STANDARD MOTOR Price and Consensus
STANDARD MOTOR Price and Consensus | STANDARD MOTOR Quote
Stocks that Warrant a Look
Some other well-ranked automobile stocks include Autoliv, Inc. (ALV - Free Report) and Superior Industries International, Inc. (SUP - Free Report) . Both the stocks sport a Zacks Rank #1 (Strong Buy).
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