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Business Expansion to Drive Adient (ADNT) Amid Global Chip Crunch
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Adient PLC’s (ADNT - Free Report) shares have appreciated 17.6% quarter to date, outperforming the industry’s marginal rise of 0.1%. Created after the separation of the automotive seating and interiors business of Johnson Controls International, Adient is one of the world’s largest automotive seating suppliers. However, this Zacks Rank #3 (Hold) firm is currently bogged down by certain macroeconomic headwinds that are keeping investors on the sidelines.
Let’s delve deeper into the tailwinds and headwinds faced by the company.
Adient designs, manufactures and sells seating systems and components for passenger cars, commercial vehicles and light trucks. The company is also engaged in supplying high-performance seating systems to the international motorsports industry. A diverse customer base, along with an international hold, has helped the company create a dominant market position.
For Adient, fiscal 2021 is turning out to be a good year for securing new and incumbent business. During the fiscal first quarter, Adient clinched a number of new businesses, including the all-new electric vehicle (EV) program with General Motors (GM - Free Report) , the Peugeot 3008 and 5008 programs and the Lincoln Nautilus program in China. This bodes well for the company’s future prospects.
Additionally, Adient regularly undertakes efforts to streamline its non-core business and boost long-term prospects. In October 2020, management announced the sale of its fabrics business, which aligns with the company’s continuing strategy of focusing on the core, high-volume seating business. Adient's recent deal to sell stake in its Yanfeng joint venture (JV) in China for $1.5 billion will enable the firm to navigate China's automotive market independently and position it for further growth in the world’s largest automotive market.
The company’s upbeat guidance for fiscal 2021 underscores notable earnings growth on the recovering industry volumes and positive backlog of new business. For fiscal 2021, Adient projects revenues of $14.6-$15 billion, higher than the $12.7 billion reported in fiscal 2020. Also, free cash flow is projected to be up to $100 million, indicating a rise from a negative free cash flow of $80 million reported in fiscal 2020.
While the company is riding on such positives, it faces certain hurdles.
Challenging macroeconomic conditions are weighing on the automotive components supplier. With the rising number of coronavirus infections and a second wave of the pandemic hitting the economy, near-term prospects of the firm are likely to be affected.
Currently, the auto industry is battling the massive issue of a global shortage of semiconductor chips, which is predicted to prevail through the first half of 2021. This is resulting in near-term production downtime across the auto industry, impacting Adient's customers. This might affect the company’s near-term performance. Moreover, the company’s high leverage, as represented by a total debt-to-capital ratio of 0.71 against its industry's 0.43, reduces its financial flexibility to tap growth opportunities. Further, unfavorable foreign-currency translations are likely to dent Adient’s profits.
Meanwhile, some better-ranked stocks in the auto space are Magna International (MGA - Free Report) and American Axle and Manufacturing Holdings (AXL - Free Report) , both of which sport a Zacks Rank of 1 at present.
The Hottest Tech Mega-Trend of All
Last year, it generated $24 billion in global revenues. By 2020, it's predicted to blast through the roof to $77.6 billion. Famed investor Mark Cuban says it will produce "the world's first trillionaires," but that should still leave plenty of money for regular investors who make the right trades early.
Image: Bigstock
Business Expansion to Drive Adient (ADNT) Amid Global Chip Crunch
Adient PLC’s (ADNT - Free Report) shares have appreciated 17.6% quarter to date, outperforming the industry’s marginal rise of 0.1%. Created after the separation of the automotive seating and interiors business of Johnson Controls International, Adient is one of the world’s largest automotive seating suppliers. However, this Zacks Rank #3 (Hold) firm is currently bogged down by certain macroeconomic headwinds that are keeping investors on the sidelines.
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Let’s delve deeper into the tailwinds and headwinds faced by the company.
Adient designs, manufactures and sells seating systems and components for passenger cars, commercial vehicles and light trucks. The company is also engaged in supplying high-performance seating systems to the international motorsports industry. A diverse customer base, along with an international hold, has helped the company create a dominant market position.
For Adient, fiscal 2021 is turning out to be a good year for securing new and incumbent business. During the fiscal first quarter, Adient clinched a number of new businesses, including the all-new electric vehicle (EV) program with General Motors (GM - Free Report) , the Peugeot 3008 and 5008 programs and the Lincoln Nautilus program in China. This bodes well for the company’s future prospects.
Additionally, Adient regularly undertakes efforts to streamline its non-core business and boost long-term prospects. In October 2020, management announced the sale of its fabrics business, which aligns with the company’s continuing strategy of focusing on the core, high-volume seating business. Adient's recent deal to sell stake in its Yanfeng joint venture (JV) in China for $1.5 billion will enable the firm to navigate China's automotive market independently and position it for further growth in the world’s largest automotive market.
The company’s upbeat guidance for fiscal 2021 underscores notable earnings growth on the recovering industry volumes and positive backlog of new business. For fiscal 2021, Adient projects revenues of $14.6-$15 billion, higher than the $12.7 billion reported in fiscal 2020. Also, free cash flow is projected to be up to $100 million, indicating a rise from a negative free cash flow of $80 million reported in fiscal 2020.
While the company is riding on such positives, it faces certain hurdles.
Challenging macroeconomic conditions are weighing on the automotive components supplier. With the rising number of coronavirus infections and a second wave of the pandemic hitting the economy, near-term prospects of the firm are likely to be affected.
Currently, the auto industry is battling the massive issue of a global shortage of semiconductor chips, which is predicted to prevail through the first half of 2021. This is resulting in near-term production downtime across the auto industry, impacting Adient's customers. This might affect the company’s near-term performance.
Moreover, the company’s high leverage, as represented by a total debt-to-capital ratio of 0.71 against its industry's 0.43, reduces its financial flexibility to tap growth opportunities. Further, unfavorable foreign-currency translations are likely to dent Adient’s profits.
Meanwhile, some better-ranked stocks in the auto space are Magna International (MGA - Free Report) and American Axle and Manufacturing Holdings (AXL - Free Report) , both of which sport a Zacks Rank of 1 at present.
The Hottest Tech Mega-Trend of All
Last year, it generated $24 billion in global revenues. By 2020, it's predicted to blast through the roof to $77.6 billion. Famed investor Mark Cuban says it will produce "the world's first trillionaires," but that should still leave plenty of money for regular investors who make the right trades early.
See Zacks' 3 Best Stocks to Play This Trend >>