Superior Industries’ highly-diversified customer base, significant geographic footprint and extensive array of value-added products are aiding the company’s revenue growth. Further, the firm’s margin-expansion efforts in different operating markets bode well. However, lowered projections for net sales and high net debt are concerns. The company’s shares have slumped 43.1% year to date, outperforming its industry’s 26.9% rise.
Let’s delve deeper to find out why this Zacks Rank #3 (Hold) stock is worth retaining at the moment.
What’s Aiding the Stock?
With a highly-diversified customer base, significant geographic footprint and extensive array of value-added products, Superior Industries is poised for solid top-line growth. The firm’s acquisition of UNIWHEELS AG in 2017 has positioned it as a leading global partner to automotive OEMs located in both North America and Europe. The company expects the buyout to result into $15 million in annual run-rate synergies by 2020.
In order to fortify its strategic position, Superior Industries is investing in new manufacturing processes with finer finishes which have a higher value. The company is committed to serve its global customer base by introducing innovative technologies. The strategy is in sync with market trends and customer requirements. Superior Industries’ cutting-edge R&D capabilities have been aiding the firm to broaden and expand the portfolio for premium wheel finishes.
The firm’s margin-expansion efforts in different operating markets also bode well. The company’s reduction of its manufacturing operation in Fayetteville is likely to reduce overhead. In Mexico, the company is aimed at improving foundry capabilities inside its plant, while also implementing targeted plans to reduce attrition. Superior Industries is likely to improve its sales mix with program launches likely on larger SUVs and higher-priced vehicles. Robust demand from OEMs for complex wheel technologies and designs will boost sales over the coming years.
Superior Industries’ efforts to reduce costs and enhance its global competitive position are also encouraging. The company plans to reduce costs through better operational and procurement practices as well as more rigorous factory maintenance to improve equipment reliability. Year to date, the company’s selling, general and administrative expenses came in at $46.7million, down 23% year over year.
A Few Concerns
As of Sep 30, the company’s net debt was $709 million, representing debt-to-capital ratio of 68.4%. The company’s elevated leverage restricts its financial flexibility to tap growth opportunities. Moreover, the firm's suspension of quarterly dividend to repay its debt is likely to dampen investor confidence.
The company has also revised down its full-year guidance amid the 40-day labor strike at General Motors, which is one of the major customers of Superior Industries. It now projects unit shipments in the band of 19.5-19.7 million compared with the prior guidance of 19.5-19.9 million. Net sales are projected to lie between $1.39 million and $1.42 million compared with the prior range of $1.39-$1.44 billion.
Superior Industries’ operation in Europe makes it vulnerable to foreign-currency fluctuation. A weaker euro to the U.S. dollar-exchange rate is affecting the company’s margins. Also, lower aluminum prices are other headwinds.
The firm's major OEM customers are constantly demanding concessions in the form of lower prices. If the company gives in to the demand for higher annual price reductions and is unable to offset the impact of such price reductions through technology improvements and cost reductions, its results of operations and financial condition might be affected. Sluggish auto sales amid economic slowdown are concerns as well.
Stocks to Consider
Some better-ranked stocks in the Auto-Tires-Trucks sector are BRP Inc. (DOOO - Free Report) , Spartan Motors, Inc. and SPX Corporation (SPXC - Free Report) . While BRP flaunts a Zacks Rank #1 (Strong Buy), Spartan Motors and SPX carry a Zacks Rank #2 (Buy), at present. You can see the complete list of today’s Zacks #1 Rank stocks here.
BRP has a projected earnings growth rate of 20.17% for the current year. Its shares have gained around 46.6% over the past year.
Spartan Motors has an estimated earnings growth rate of 85.42% for the ongoing year. The company’s shares have surged 127.9% in a year.
SPX has an expected earnings growth rate of 23.18% for 2019. The company’s shares have appreciated 71.5% in the past year.
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