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Delphi Technologies Banks on Product Portfolio Amid Debt Woes
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Delphi Technologies PLC is benefiting from vast global network and innovative product portfolio.
Recently, the company reported mixed fourth-quarter 2018 results wherein earnings surpassed the Zacks Consensus Estimate but revenues missed the same. Adjusted earnings per share of $1.06 beat the consensus mark by 18 cents and declined on a year-over-year basis. Revenues of $1.17 billion missed the consensus estimate by $3.7 million and decreased 9.2% year over year on a reported basis and 5% on an adjusted basis (adjustments were made for currency exchange and certain aftermarket original equipment service revenue retained by the former parent).
Delphi Technologies has an impressive earnings surprise history, having outpaced estimates in three of the trailing four quarters. It delivered average four-quarter beat of 8.6%.
What’s Driving Delphi Technologies?
Delphi Technologies has a geographically diverse revenue base. Region-wise, it derived 44% of revenues from Europe, 28% from North America, 25% from the Asia Pacific and 3% from South America in 2018.
Adjusted revenues increased 16% in South America, 6% in North America and 3% in Europe. While growth in Commercial Vehicle and GDi drive revenues from Europe, the same from North America is benefiting from program launches and increased sales to Commercial Vehicle customers.
Regional presence coupled with its diversified and innovative product portfolio with updated technologies makes Delphi Technologies a solid choice for original equipment manufacturers (OEMs). This is because OEMs are focused on increasing efficiency and expanding their global manufacturing footprint by choosing suppliers with global scale, who can easily adapt to regional variations. In 2018, within the Powertrain Systems segment, 72% of net sales came from light vehicle OEM customers and 28% from commercial vehicle OEM customers.
Furthermore, the company’s aftermarket business continues to generate stable recurring revenues. Also, Delphi Technologies witnessed robust growth across its two portfolios — Power Electronics and Commercial Vehicle Systems — which grew approximately 30% and 25%, respectively, in fourth-quarter 2018.
Risks
Delphi Technologies has a highly leveraged balance sheet. As of Dec 31, 2018, long-term debt was $1.49 billion, while cash and cash equivalents were $359 million. Such a cash position implies that the company needs to generate adequate amount of operating cash flow to service its debt. Also, high debt may limit the company’s future expansion and worsen its risk profile.
Declining revenues in passenger car diesel and GDi continue to weigh on Delphi Technologies’ top line. Global presence exposes it to foreign currency exchange rate fluctuations. The company’s business also gets affected by seasonal factors.
Long-term expected EPS (three to five years) growth rate for Interpublic, Omnicom and Paychex is 2.7%, 4.7% and 8.8%, respectively.
Zacks' Top 10 Stocks for 2019
In addition to the stocks discussed above, would you like to know about our 10 finest buy-and-holds for the year?
Who wouldn't? Our annual Top 10s have beaten the market with amazing regularity. In 2018, while the market dropped -5.2%, the portfolio scored well into double-digits overall with individual stocks rising as high as +61.5%. And from 2012-2017, while the market boomed +126.3, Zacks' Top 10s reached an even more sensational +181.9%.
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Delphi Technologies Banks on Product Portfolio Amid Debt Woes
Delphi Technologies PLC is benefiting from vast global network and innovative product portfolio.
Recently, the company reported mixed fourth-quarter 2018 results wherein earnings surpassed the Zacks Consensus Estimate but revenues missed the same. Adjusted earnings per share of $1.06 beat the consensus mark by 18 cents and declined on a year-over-year basis. Revenues of $1.17 billion missed the consensus estimate by $3.7 million and decreased 9.2% year over year on a reported basis and 5% on an adjusted basis (adjustments were made for currency exchange and certain aftermarket original equipment service revenue retained by the former parent).
Delphi Technologies has an impressive earnings surprise history, having outpaced estimates in three of the trailing four quarters. It delivered average four-quarter beat of 8.6%.
What’s Driving Delphi Technologies?
Delphi Technologies has a geographically diverse revenue base. Region-wise, it derived 44% of revenues from Europe, 28% from North America, 25% from the Asia Pacific and 3% from South America in 2018.
Adjusted revenues increased 16% in South America, 6% in North America and 3% in Europe. While growth in Commercial Vehicle and GDi drive revenues from Europe, the same from North America is benefiting from program launches and increased sales to Commercial Vehicle customers.
Regional presence coupled with its diversified and innovative product portfolio with updated technologies makes Delphi Technologies a solid choice for original equipment manufacturers (OEMs). This is because OEMs are focused on increasing efficiency and expanding their global manufacturing footprint by choosing suppliers with global scale, who can easily adapt to regional variations. In 2018, within the Powertrain Systems segment, 72% of net sales came from light vehicle OEM customers and 28% from commercial vehicle OEM customers.
Furthermore, the company’s aftermarket business continues to generate stable recurring revenues. Also, Delphi Technologies witnessed robust growth across its two portfolios — Power Electronics and Commercial Vehicle Systems — which grew approximately 30% and 25%, respectively, in fourth-quarter 2018.
Risks
Delphi Technologies has a highly leveraged balance sheet. As of Dec 31, 2018, long-term debt was $1.49 billion, while cash and cash equivalents were $359 million. Such a cash position implies that the company needs to generate adequate amount of operating cash flow to service its debt. Also, high debt may limit the company’s future expansion and worsen its risk profile.
Declining revenues in passenger car diesel and GDi continue to weigh on Delphi Technologies’ top line. Global presence exposes it to foreign currency exchange rate fluctuations. The company’s business also gets affected by seasonal factors.
Zacks Rank and Key Picks
Currently, Delphi Technologies has a Zacks Rank #3 (Hold). Some better-ranked stocks in the broader Zacks Business Services sector are Interpublic (IPG - Free Report) , Omnicom (OMC - Free Report) and Paychex (PAYX - Free Report) , each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Long-term expected EPS (three to five years) growth rate for Interpublic, Omnicom and Paychex is 2.7%, 4.7% and 8.8%, respectively.
Zacks' Top 10 Stocks for 2019
In addition to the stocks discussed above, would you like to know about our 10 finest buy-and-holds for the year?
Who wouldn't? Our annual Top 10s have beaten the market with amazing regularity. In 2018, while the market dropped -5.2%, the portfolio scored well into double-digits overall with individual stocks rising as high as +61.5%. And from 2012-2017, while the market boomed +126.3, Zacks' Top 10s reached an even more sensational +181.9%.
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