If you are still holding on to shares of Autoliv, Inc. (ALV - Free Report) in your portfolio, it is time you dump those as chances of favorable returns in the near term appear bleak.
Similar to wise buying decisions, offloading certain underperformers at the right time helps maximize portfolio returns. Autoliv has had a dismal run on the bourses in the past year and is witnessing downward earnings estimate revisions for the current fiscal year. Further, the company’s Zacks Rank #4 (Sell) highlights its innate weakness.
Notably, the stock has lost 24.9% of its value year to date, wider than the industry’s 18.7% decline.
The coronavirus pandemic has crippled the auto industry and will result in a decline in sales, going forward. The COVID-19 pandemic has impacted the automotive supplier’s customers in the United States, China and Europe. The company temporarily closed its plants and reduced production levels, in line with the nation-wide campaign addressing the crisis. Per IHS Markit, global light vehicle production declined around 24% year over year during first-quarter 2020, in turn denting the firm’s earnings and sales. Amid coronavirus-led uncertainty, Autoliv has suspended quarterly dividends and annual view.
The firm expects to take a bigger hit in the second quarter due to factory closures by automakers. IHS Markit expects second-quarter light vehicle production to decline 45% in second-quarter 2020. Amid the gloomy scenario, Autoliv anticipates a sharp decline in earnings and sales in the quarter.
For 2020, the company expects light-vehicle markets to witness a slump due to softening consumer confidence, trade tariffs, COVID-19 impacts and regulatory changes. Global vehicle production and sales are expected to be weak across major key markets including the United States and Europe in 2020, which does not bode well for automotive suppliers like Autoliv. Global light vehicle production is expected to decline going forward due to the impact of strict CO2 emission limits in Europe.
Rising debt level of Autoliv also plays a spoilsport and restricts the firm’s financial flexibility. As of Mar 31, 2020, its long-term debt increased to $2,209 million from $1,726 million recorded in the prior quarter. The company’s gross margin is under strain, primarily due to high raw material costs, and the trend is expected to continue. Launch-related costs, currency volatility, RD&E expenses, lower capacity utilization of supply-chain production and logistic systems are other headwinds. Product introductions are expected to keep costs at high levels, going forward. As the market for active safety products is fragmented, competition is rife.
Considering the headwinds, it will be a wise decision on investors’ part to remove this stock from their portfolio for now. Meanwhile, some better-ranked stocks in the same industry include Adient PLC (ADNT - Free Report) , Unique Fabricating Inc. (UFAB - Free Report) and Veoneer Inc. (VNE - Free Report) , each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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