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Aptiv Hit by Coronavirus-Led Weak Global Vehicle Production

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Aptiv PLC (APTV - Free Report) is currently grappling with global vehicle-production decline, work stoppages and supply-chain disruptions due to coronavirus.

In the first quarter of 2020, the company’s earnings of 68 cents per share declined 35.2% year over year and came way below the guided range of 86-94 cents. Revenues of $3.23 billion were down 9.8% year over year and came below guided range of $3.47-$3.57 billion.

So far this year, shares of Aptiv have declined 16.1% against the 5.7% rally of the industry it belongs to.

Global Vehicle Production Disrupted

Aptiv’s top and bottom lines are being severely impacted by a sharp decline in global vehicle production due to the coronavirus pandemic. The impact of total shutdown of OEM operations in North America and Europe are expected to be more severe in the second quarter of 2020 in comparison to the first quarter.

Global vehicle production declined 20% in the first quarter of 2020. Aptiv anticipates more than 50% decline in second quarter and 20-30% decline for the year 2020.

Debt Woe Stays

Aptiv has a debt-laden balance sheet. Total debt at the end of first-quarter 2020 was $6.53 billion compared with $4.69 billion at the end of the prior quarter. Total debt-to-capital ratio of 0.56 was higher than the industry’s 0.46 and the previous quarter’s 0.54. An increase in debt to capitalization ratio indicates higher risk of insolvency in challenging times.

Further, the company’s cash and cash equivalent of $2.09 billion at the end of the first quarter was well below this debt level, underscoring that it doesn’t have enough cash to meet this debt burden. The cash level, however, can meet the short-term debt of $260 million.

Zacks Rank and Stocks to Consider

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

Some better-ranked stocks in the broader Zacks Business Services sector are H&R Block (HRB - Free Report) , SPS Commerce (SPSC - Free Report) and SailPoint Technologies , each carrying a Zacks Rank #2 (Buy) currently. You can see the complete list of today’s Zacks #1 Rank stocks here.

The long-term expected earnings per share (three to five years) growth rate for H&R Block, SPS Commerce and SailPoint is 10%, 15% and 15% respectively.

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