The next step in the driverless car race was taken yesterday when Intel (INTC) announced that it would be acquiring Mobileye (MBLY) in a roughly $15.3 billion deal. It’s safe to say that we’re still far away from napping on our drive to work, but it was a reminder of the innovations we have to look forward to in the automotive industry. The news even benefited traditional areas like
Automotive – Original Equipment. However, this space doesn’t need flashy acquisitions to outperform the market.
It is in the top 14% of the
Zacks Industry Rank with the 35th spot out of 256 industries. There are 37 stocks in the group, and an impressive 8 of them are Zacks Rank #1s (Strong Buys) while another 3 are Zacks Rank #2s (Buys). Only 5 stocks in the industry have a sell ranking. The space benefited from a strong year for auto sales in 2016.
But what about
THIS year? Auto sales have lagged a bit in January and February to start things off. However, the economy (and bull market for that matter) show no signs of slowing down at the moment. Employment is on the rise and consumers are feeling pretty optimistic about the economy’s future. So why not buy that car?. And this doesn’t even take into account the pro-growth policies that the new administration are promising. The companies with factories outside of the U.S. may run into some trouble in these more protectionist times, but President Trump’s focus on tax cuts, deregulation and infrastructure spending could open up numerous avenues of continued success.
For today, let’s focus on three Zacks Rank #1s that are outperforming this highly ranked industry:
Meritor, Inc. ( MTOR)
Meritor, Inc. (MTOR) isn’t trying to be cute with its new brand identity. “Run With The Bull” pretty much says it all. The company has every intention to charge forward into the future with a strategic business plan dubbed “M2019”. The primary objective is to grow revenues by 20% above the market cumulatively, while increasing earnings per share by $1.25. Through the plan, MTOR aims to reduce its debt level and introduce 20 new products over the next 3 years. And this bull isn’t just pawing up dust; the M2016 achieved the company’s objectives of improving operations, reducing debt and attracting new customers.
MTOR is a global automotive parts manufacturer and supplier. The majority of its business comes from supplying drivetrain systems and components to medium- and heavy-duty trucks, including axles, drivelines and braking & suspension systems. MTOR has outperformed its highly-ranked industry over the past three months; its share price is up approximately 30% YTD. The company has beaten the Zacks Consensus Estimate for four straight quarters with an average surprise of 18.6%. In fact, except for one miss in early 2016, the company has beaten expectations in 15 out of the last 16 quarters.
The past month has seen earnings estimates for this fiscal year (ending in September) advance by nearly 3%, though most of that gain has come in the last 7 days. The Zacks Consensus Estimate for next fiscal year (ending September 2018), is up 7% in 30 days to $1.83. Therefore, earnings growth for next fiscal year is currently expected to soar nearly 30% year over year.
Lear Corporation ( LEA)
Lear Corporation (LEA) is coming off of the best year in its history. Sales reached a record $18.6 billion, or 2% better than last year. Adjusted earnings per share of $14.03 were also a record and up 29% year over year.
“We achieved record performance in all key financial metrics, continued to improve our cost structure and strengthened our product capabilities,” said President & CEO Matt Simoncini. Looking forward, the company expects sales in 2017 of approximately $19.5 billion.
LEA is a leading global supplier of automotive seating systems, electrical distribution systems and electronics. The company hasn’t missed earnings estimates in the past five years. Most recently, it reported $3.80 per share for its fourth quarter, which was nearly 11.8% better than the Zacks Consensus Estimate. The past four quarters have amassed an average surprise of 11.7%. Thanks to its strong operating performance and record year, LEA was able to increase its share repurchase authorization to $1 billion last month, while extending the authorization period until December 31, 2019. It also increased its quarterly cash dividend by 67%.
Earnings estimates have moved sharply higher for LEA over the past two months. The Zacks Consensus Estimate for this year is $15.49 per share, or 7.5% better than 60 days ago. Next year’s estimate of $16.30 is up 7.6% in that time and suggests year-over-year growth of 5.2%. Both periods have also experienced advances of approximately 1% in the past 30 days.
American Axle & Manufacturing Holdings, Inc. ( AXL Quick Quote AXL - Free Report)
American Axle & Manufacturing Holdings, Inc. (
AXL Quick Quote AXL - Free Report) reported another record year of sales and profit in 2016, and all signs point to more of the same in 2017. The company has a backlog of new and incremental business launches set for this year through 2019. AXL will be supporting 23 major project and program launches this year alone.
AXL is a leading supplier of driveline and drivetrain systems, modules and components for the light vehicle market. It makes things like axles, chassis and driveshafts, among
MANY others, for light trucks SUVs and passenger cars. In its fourth quarter report, earnings per share of 78 cents beat the Zacks Consensus Estimate by more than 13% for its 10th straight positive surprise. It has an average beat of 9.2% over the past 4 quarters. For all of 2016, earnings of $3.30 topped the Zacks Consensus Estimate of $3.17 and the year-earlier total of $2.88.
Sales for 2017 are already expected between $4.1 billion and $4.2 billion, which would be higher than the record $3.95 billion in 2016. In addition, the company’s acquisition of Metaldyne Performance Group should come sometime in the first half. It is expected to widen AXL’s operating scale, customer base and end markets, while further reducing its reliance on GM.
The Zacks Consensus Estimate for 2017 is now at $3.43 per share, which is up 10.3% over the past two months as 5 of 6 covering analysts lifted their expectations. That includes a 6.2% advance in just the past 30 trading days.
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