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Auto Stock Roundup: German Automakers Under EU Radar, GM Recalls, Thor to Buy EHG

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Last week witnessed the troubled German automakers facing regulatory probe. European Union regulators opened an in-depth investigation to find out whether there was a possible collusion between top automakers to impede the development of emission technologies. It will be investigated whether the companies decided not to compete with each other by developing catalytic reduction systems to curb pollution from gasoline or diesel-engine passenger cars.

On the other hand, the past week saw, General Motors Company (GM - Free Report) deciding to recall 1.2 million pickup trucks and sport utility vehicles (SUVs) from all over the world due to problems related to power steering, per Reuters. Again, Thor Industries, Inc. (THO - Free Report) has agreed to buy Germany’s Erwin Hymer Group SE (“EHG”) for €2.1 billion, marking its biggest acquisition. This is likely to create the world’s largest recreational vehicle (“RV”) manufacturer, with strong position in both North America and Europe.

On the earnings front, past week saw Copart, Inc. (CPRT - Free Report) to report fourth quarter and fiscal 2018 earnings results. During the quarter under review, the company reported adjusted earnings per share of 42 cents, missing the Zacks Consensus Estimate of 47 cents. However, revenues beat estimates during the reported quarter.


(Read the previous roundup here: Auto Stock Roundup for Sep 13, 2018)

Recap of the Week’s Most Important Stories

1.    General Motors is recalling 1.2 million pickup trucks and SUVs across the globe due to problems pertaining to power steering, per Reuters. According to the National Highway Traffic Safety Administration, the flaw that is perhaps due to software and electrical issues may cause difficulty in steering the vehicle, particularly, while turning at a low speed. This even raises the chance of fire. Notably, in 2017, this carmaker had to recall 2014 model year trucks for the same problems.

The recall includes 1.02 million vehicles in the United States. Majority of vehicles recalled are from Canada and Mexico, and a small number of vehicles are from other countries. The models include Chevrolet Silverado 1500 and GMC Sierra 1500 pickups along with Chevrolet Tahoe, Chevrolet Suburban, GMC Yukon and Cadillac Escalade SUVs from the 2015 model year.

Per the company, the automaker received reports of 30 crashes and two injuries but no death has been reported. Sources have added that the dealers are going to fix power steering software problems for free, though no specific date has been fixed yet to notify the customers. However, the company has informed that the software is available now; therefore, owners can contact dealers to schedule repairs. (Read more: General Motors to Recall 1.2M Pickup Trucks & SUVs)

General Motors currently carries a Zacks Rank # 5 (Strong Sell).

2.    Volkswagen AG (VLKAY - Free Report) intends to manufacture 10 million electric cars (e-cars) by utilizing its new modular MEB platform, per Reuters. This is in sync with this German auto giant’s target of starting the global mass production of e-cars toward the end of 2022.

Per the news, this auto giant will build vehicles of 27 models, using the MEB —modular electrification kit — at its plant in Zwickau, Germany, in late 2019.

Similar to other German automakers, Volkswagen is aiming at the mass production of electric cars as its rival in the United States, Tesla, Inc. (TSLA - Free Report) , is facing a lot of hardship to expedite the production of Model 3 — Tesla’s first car, targeting the mass market.

In fact, after the revelation of the three-year-ago diesel emissions scandal, which badly tarnished Volkswagen’s image, it set an ambitious plan to become a global leader in the electric vehicle market. The company plans to invest $7 billion in e-car production, which includes huge investment in its German plants at Braunschweig, Salzgitter and Kassel. (Read more: Volkswagen Intends to Build 10M Electric Cars in MEB Platform)

Volkswagen currently carries a Zacks Rank # 4 (Sell).

3.    Lithia Motors, Inc. (LAD - Free Report) has inked a strategic partnership with San Francisco-based e-commerce retailer, Shift. The underlying idea is to capture majority of used vehicles — above 40 million to be specific — sold in the United States per year and use more technology for simplifying car buying and ownership experience. Such an alliance will allow both the companies to collaborate with respect to technology, inventory, data, business and physical network.

Notably, Shift is the largest used-car retailer in San Francisco and operates all over California. The company is anticipated to sell around 8,000 vehicles during 2018. While leading automotive retailer, Lithia Motors deals in new and used vehicles plus related services in the United States. Shift’s dynamic operational capabilities and technology platform are likely to complement Lithia Motors’ culture of creating a digital marketplace as well as its timely provision of a decent retail experience to its customers.

Additionally, Lithia Motors will be the front-runner in Shift’s Series D fundraising round. Lithia Motors will invest $54 million to become Shift’s largest shareholder. (Read more: Lithia Motors Inks Strategic Deal With E-commerce Retailer)

Lithia Motors currently carries a Zacks Rank # 4.

4.    In a notable development, Thor has agreed to buy Germany’s EHG for €2.1 billion ($2.5 billion), marking its biggest acquisition.

This cash and stock deal is likely to open up chances before the Elkhart, IN-based RV manufacturer, Thor, to stamp its position in the growing European RV market. On the other hand, Hymer family finds a ‘new owner partner’ in Thor Industries for Erwin Hymer Group to effectively go on with its long-term growth and internationalization strategy. Moreover, the combination of Thor and Erwin Hymer Group is likely to create the world’s largest RV manufacturer, with strong position in both North America and Europe.

The board of directors of Thor has approved the transaction and it is likely to close near the end of 2018. However, the fructification of the deal is subject to the satisfaction of certain customary and other required approvals. Following the announcement of the deal, shares of Thor have gained 5.8% in a day’s trading.

Thor anticipates the acquisition of Bad Waldsee, Germany-based EHG to likely be accretive to its earnings in the first year. EHG is a leading manufacturer of RVs in the growing European market, with a strong lineup of industry-leading vehicle brands. This deal provides an excellent opportunity for Thor to expand with this European RV market leader.

On the other hand, with Thor Industries, Erwin Hymer Group will be able to expedite the development of its relatively new activities in the promising North American market. (Read more: Thor to Acquire Erwin Hymer Group for $2.5 Billion)

Thor currently carries a Zacks Rank # 4.

5.    Copart reported adjusted earnings per share of 42 cents in fourth-quarter fiscal 2018 (ended Jul 31, 2018), missing the Zacks Consensus Estimate of 47 cents. The bottom line improved 20% from 35 cents recorded in the year-ago quarter.

Net income was $109.7 million, reflecting a surge of 56% or $39.4 million from fourth-quarter fiscal 2017.

Copart’s revenues rose 18.7% to $449.2 million from the year-ago quarter and surpassed the Zacks Consensus Estimate of $446.4 million. Service revenues went up 16% year over year to $391.7 million while revenues from vehicle sales gained 38% to $56.6 million in comparison with the prior-year quarter.

Gross profit improved 13% to $188.4 million from $167.5 million a year ago. Total operating expenses increased to $314.4 million from $267.8 million recorded in the prior-year period.

Operating income increased to $134.8 million from $110.8 million a year ago.

For fiscal 2018, Copart has reported adjusted earnings per share of $1.73, up from the prior-year figure of $1.29. In fiscal 2018, revenues were $1.8 billion, up from the 2017 figure of $1.5 billion.

Copart currently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Performance

Last week, all these stocks have gained except AutoZone, Inc. (AZO - Free Report) , which recorded a decline of 1.3%. Honda Motor Co., Ltd. (HMC - Free Report) has gained the maximum.

In the past six months, Advance Auto Parts, Inc. (AAP - Free Report) has increased the most. Honda has declined the most.

CompanyLast WeekLast 6 Months
GM4.9%-4.9%
F4.7%-11.9%
TSLA2.9%-5.5%
TM4.5%-3.1%
HMC7.5%-12.3%
HOG1.6%4.5%
AAP1.5%47.1%
AZO-1.3%16.3%

What’s Next in the Auto Space?

Watch out for the usual news releases over the next week.

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