Superior Industries’ SUP highly-diversified customer base, significant geographic footprint and extensive array of value-added products are fueling 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.Shares of the company have decreased 36.9% year to date against the industry’s decline of 11.5%.
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 revenue growth. The firm’s acquisition of UNIWHEELS AG 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 enhancement efforts in different operating markets bode well. The company’s reduction of its manufacturing operation in Fayetteville is likely to reduce overhead expenses. In Mexico, the firm is putting emphasis on 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 should boost sales over the coming years.
Superior Industries’ efforts to reduce costs and enhance its global competitive position bode well. The company plans to reduce costs through better operational and procurement practices, as well as more rigorous factory maintenance to improve equipment reliability. In 2019, the company’s selling, general and administrative expenses came in at $63.9 million, down 17.8% from 2018.
A Few Concerns
As of Dec 31, the company’s net debt was $553 million, representing debt-to-capital ratio of 68.72%. The company’s elevated leverage restricts its financial flexibility to tap growth opportunities.
The company has revised down its full-year guidance due to the 40-day labor strike at General Motors — one of the major customers of Superior Industries. Superior Industries projects unit shipments in the band of 18.4-19 million in 2020 compared with the 2019 figures of 19.2 million. Net sales in 2020 are projected to lie between $1.33 million and $1.39 million compared with the 1.37 billion reported in 2019.
Superior Industries’ operations in Europe make it vulnerable to foreign-currency fluctuations. A weaker euro to the U.S. dollar-exchange rate has been denting 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. The sluggish auto sales amid economic slowdown is another concern.
Stocks to Consider
Some better-ranked stocks in the Auto-Tires-Trucks sector include LCI Industries (
LCII Quick Quote LCII - Free Report) , SPX Corporation SPXC and Adient PLC ( ADNT Quick Quote ADNT - Free Report) . While LCI sports a Zacks Rank #1 (Strong Buy), SPX and Adient carry a Zacks Rank of 2 (Buy), at present. You can see . the complete list of today’s Zacks #1 Rank stocks here
LCI has an estimated earnings growth rate of 20.72% for the ongoing year. The company’s shares have gained 19.8% in a year’s time.
SPX has an expected earnings growth rate of 6.52% for 2020. The stock has rallied 22.6% in the past year.
Adient has a projected earnings growth rate of 17.79% for the current year. The company’s shares have appreciated 29% over the past year.
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