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Autoliv Stock Soars on Electronics Segment Split-Off Plan

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Autoliv, Inc. (ALV - Free Report) recently announced that it is mulling over splitting into two separate publicly traded companies. The decision to split is currently under strategic review. The plans of separating its two business segments – Passive Safety and Electronics – sent its share price soaring.

In yesterday’s trading, its shares rose 12.3%, courtesy of talks of splitting its Electronics division, the autonomous-driving technology mainstay. However, there is no certainly that the review would fructify into a separation or listing of the businesses. If at all the separation happens, it would take around a year.

While one entity would focus on passive safety, which includes equipments such as airbags and seatbelts, the other would concentrate on automotive radars and cameras with driver-assist systems, which are used in autonomous-driving technology.

The Stockholm, Sweden-based auto-parts giant is the market leader in safety gears such as airbags and seatbelts. However, the company has not yet reached a dominant position in new fields such as radar, visions systems and driver-assistance software that are integral to the development of self-driving cars. Separation of these two segments would help in bringing out the best of both these divisions. The two separate entities with a strong product line up would generate additional value for the customers and shareholders compared to the present combined structure.

In the last two years the Electronics unit has bolstered its position. The company inked important tie ups with companies like Volvo Cars (Zenuity), NVIDIA and LiDAR experts Velodyne for the next generation of highly automated cars. Electronics sales were $2.22 billion in 2016, and the company projects to raise this figure to$3 billion in 2020.

Autoliv has outperformed the industry it belongs to over the past six months. The company’s shares have gained 21.2% compared with the industry’s growth of 13.4%.

Autoliv currently carries a Zacks Rank #3 (Hold).

A few top-ranked automobile stocks are Toyota Motor Corporation (TM - Free Report) , Daimler AG (DDAIF - Free Report) and Volkswagen AG (VLKAY - Free Report) . While Toyota and Daimler sport a Zacks Rank #1 (Strong Buy), Volkswagen carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here..

Toyota has a long-term growth rate of 7%.

Daimler has an expected long-term earnings growth rate of 2.8%

Volkswagen has an expected long-term earnings growth rate of 8.9%

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