Back to top

Analyst Blog

We are reiterating our Neutral recommendation on Tenneco Inc. (TEN - Analyst Report). The leading maker of emission control and ride control systems benefits from tighter emission regulations and rising commercial vehicle business. However, the company remains exposed to customer concentration risks.

Tenneco, in the second quarter of 2012, registered a 40% increase in profit (excluding special items) to $70 million or $1.14 per share from $50 million or 81 cents in the comparable quarter last year. The results also breezed past the Zacks Consensus Estimate by 17 cents.

Total revenue increased marginally to $1.92 billion, but failed to match the Zacks Consensus Estimate of $2.04 billion.  The year-over-year growth was attributable to a rise in production of light vehicles in North America and China along with higher commercial vehicle revenues around the world.

The company performed well with its top-selling light trucks in North America and top-selling passenger cars overseas.  It further expects to benefit from the launch of multiple programs with 13 different commercial vehicle customers including truck and engine manufacturers to help customers comply with the new emission regulations for on and off-road commercial vehicles. The customers include Caterpillar Inc. (CAT - Analyst Report), Navistar International Corporation (NAV - Analyst Report) and Daimler AG (DDAIF).

New emission standards will have a positive impact on the company’s Emission Control segment. The new emission regulations will likely boost original equipments (OE) revenues by 18% to 20% through 2014.  In addition, the company expects revenues to benefit significantly from strong growth in North American vehicle production.

However, Tenneco remains under pressure from forced pricing concessions by automotive retailers like AutoZone Inc. (AZO - Analyst Report) and Advance Auto Parts Inc. (AAP - Analyst Report). In addition, customer concentration from the company’s top 10 aftermarket customers involving General Motors Company (GM - Analyst Report) and Ford Motor Co. (F - Analyst Report), poses a threat to the company, as they constitute 50% of total aftermarket sales.

Softness in demand for aftermarket parts compared to OE is also challenging for the company. The replacement cycles of the aftermarket products are longer owing to the improved quality of OE parts and higher average useful life of automotive parts.

Our Neutral recommendation on the stock is backed by a Zacks#3 Rank, which translates into a short-term (1 to 3 months) Hold rating.
 

Please login to Zacks.com or register to post a comment.

New to Zacks?

Start Here

Zacks Investment Research

Close

Are you a new Zacks Member or a visitor to Zacks.com?

Top Zacks Features

My Portfolio Tracker

Is it Time to Sell?

One of the most important steps you can take today is to set up your portfolio tracker on Zacks.com. Once you do, you'll be notified of major events affecting your stocks and/or funds with daily email alerts.

More Zacks Resources

Zacks Rank Home - Evaluate your stocks and use the Zacks Rank to eliminate the losers and keep the winners.

Mutual Fund Rank Home - Evaluate your funds with the Mutual Fund Rank for both your personal and retirement funds.

Stock/Mutual Fund Screening - Find better stocks and mutual funds. The ones most likely to beat the market and provide a positive return.

My Portfolio - Track your Portfolio and find out where your stocks/mutual funds stack up with the Zacks Rank.

Zacks #1 Rank Top Movers for Zacks #1 Rank Top Movers

Company Symbol Price %Chg
ERBA DIAGNO… ERB 3.80 +7.04%
BANCO DO BR… BDORY 14.74 +5.66%
AIR INDUSTR… AIRI 9.99 +4.15%
EQT MIDSTRE… EQM 98.14 +3.38%
WEATHERFORD… WFT 23.64 +3.10%