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Fitch Ratings has upgraded the issuer default ratings for TRW and its main subsidiary TRW Automotive Inc. (TRW - Analyst Report) from “BB+” to “BBB-“ based on the rebound of the company from the global economic recession in 2009.

BBB is the lowest investment-grade rating, reflecting the company’s sound credit scenario and low default risk. However, BB ratings are speculative, carrying a risk of default.

Fitch also appreciated TRW’s cash flow and balance sheet positions. The agency believes that the company will continue to be financially stable despite a slowdown in production level.

In the fourth quarter of 2011, the company topped the Zacks Consensus Estimate by a significant margin of 29 cents per share. It revealed an increase in profit to $238 million or $1.84 per share in the quarter from $225 million or $1.72 per share in the same quarter of the prior year (all excluding special items).

The company’s sales in the quarter escalated 7% to $4.0 billion, driven by higher vehicle production volumes, mainly in North America, and increasing demand for its active and passive safety products compared to the prior-year quarter.        

However, excluding special items, operating income in the quarter dipped marginally to $307 million from $310 million in the prior-year period. The decline in profit was attributable to a negative impact from higher raw material prices, higher legal fees and planned increases in costs to support future growth, partially offset by increased profit from the higher level of sales between the two quarters.    

Earnings before interest, taxes, depreciation and amortization before special items (adjusted EBITDA) declined slightly to $413 million in the quarter compared with $426 million in the prior-year quarter.

TRW anticipates sales in the range of $16.0 billion−$16.4 billion for full year 2012, including $4.1 billion for the first quarter of the year. The expectations are based on the assumptions for industry production volumes of 13.9 million units in North America and 18.4 million units in Europe. The company continues to expect China and the rest of world regions to be the growth drivers in 2012.

TRW, headquartered in Michigan, is a leading manufacturer of advanced technology products and services for the automotive markets. The company’s operations include design, manufacture and sale of active and passive safety related products. It is among the world’s 10 largest suppliers of automotive systems, modules and components to global automotive manufacturers. Its main competitors include Autoliv Inc. (ALV - Analyst Report).

The company’s continued focus on innovative technologies is capable of generating top- and bottom-line growth. In addition, we believe its strong exposure to the international markets, especially emerging markets, will fuel earnings growth.

However, we are concerned about weaknesses in the European markets – where the company generates more than half of revenues, high customer concentration and a challenging pricing environment. As a result, it retains a Zacks #3 Rank on its stock, which translates to a “Hold” rating for the short term (1 to 3 months).

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