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Meritor (MTOR) Up 13.5% Since Earnings Report: Can It Continue?

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It has been more than a month since the last earnings report for Meritor, Inc. (MTOR - Free Report) . Shares have added about 13.5% in that time frame, outperforming the market.

Will the recent positive trend continue leading up to the stock's next earnings release, or is it due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.

Meritor Q3 Earnings & Revenues Beat, Improve Y/Y

Meritor recorded a 12.3% year-over-year increase in the adjusted earnings of  64 cents  per share in the third quarter of 2017 (ended Jun 30, 2017), comfortably surpassing the Zacks Consensus Estimate of 44 cents..

Adjusted net income was $48 million compared with $41 million in the third quarter of 2016.

Revenues increased 9% year over year to $920 million. The top line also surpassed the Zacks Consensus Estimate of $841 million.

Meritor’s adjusted EBITDA (earnings before interest, tax, depreciation and amortization) increased to $103 million from $96 million in the year-ago quarter. Adjusted EBITDA margin was 12.2% compared with 11.4% in the year-ago quarter. Adjusted EBITDA and EBITDA margin increased on a year-over-year basis, driven by high revenue growth and a continued material performance, partly offset by variable compensation accruals.

Segment Results

Revenues from the Commercial Truck & Industrial segment shot up to $728 million, up $88 million from the same period, last year. This increase in revenue was primarily driven by higher Class 8 truck production in North America, Europe and China. Segment adjusted EBITDA jumped by $14 million to $75 million. EBITDA margin inched up to 10.3% from 9.5% in the prior-year quarter.

Revenues from the Aftermarket & Trailer segment were $228 million, a slight increase from the year-ago quarter. Segment EBITDA was $26 million, down 12% from the year-ago quarter. EBITDA margin decreased to 11.4% compared with 16.7 % a year ago. This reduction in Segment EBITDA and EBITDA margin was due to a supplier’s settlement recognized in the third quarter of fiscal year 2016 that did not repeat further.

Financial Position

Meritor’s cash and cash equivalents totaled $231 million as of Jun 30, 2017 compared with $160 million as of Sep 30, 2016. Total debt decreased to $858 million as of Jun 30, 2017 from $982 million as of Sep 30, 2016.

In the first nine months, Meritor’s cash flow from operating activities fell to $91 million, in comparison to $105 million, recorded in the year-ago period. Capital expenditures decreased to $52 million from the year-ago figure of $66 million.

Share Repurchases

The company didn’t repurchase any share in the reported quarter.

Outlook

For 2017, Meritor expects revenues to be approximately $3.25 billion compared with the previous projection of $3.1 billion. Adjusted EBITDA margin is likely to be 10.2%. Adjusted earnings from continuing operations are anticipated to be roughly $1.70 per share compared with the previous view of $1.40 per share.

For fiscal 2017, the company increased its free cash flow estimate to $80-$90 million from $50–$70 million expected earlier. Similarly, operating cash flow is expected to be in the range of $165-$175 million compared with the previous guidance of $140–$160 million.

How Have Estimates Been Moving Since Then?

Analysts were quiet during the past month as none of them issued any earnings estimate revisions.

Meritor, Inc. Price and Consensus

 

Meritor, Inc. Price and Consensus | Meritor, Inc. Quote

VGM Scores

Currently, the stock has an average Growth Score of C, while its Momentum is doing a lot better with an A. Following the exact same course, the stock was allocated a grade of A on the value side, putting it in the top 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.

Our style scores indicate that the stock is more suitable for momentum and value investors than growth investors.

Outlook

The stock has a Zacks Rank #1 (Strong Buy). We are expecting an above average return from the stock in the next few months.




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