The growing demand for advanced technologies and electric vehicles, fueled by government incentives, environmental concerns, and sustainable transportation regulations, is expected to propel the auto industry’s growth. Given the industry’s growth prospects, investors could consider buying fundamentally sound auto stocks Mercedes-Benz Group AG (MBGAF), DENSO Corporation (DNZOY) and Ituran Location and Control Ltd. (ITRN) for solid returns.
Before diving deeper into their fundamentals, let’s discuss what’s happening in the auto industry.
According to Atlas Public Policy, electric vehicle sales in the United States are likely to reach a record 9% of all passenger vehicles in 2023. This will be an increase from 7.3% of new car sales in 2022. Government incentives and policies encouraging the use of electric vehicles have played an important role in pushing this growing trend.
This will be the first time that more than one million EVs are sold in the United States in a single calendar year, with sales likely to range between 1.3 million and 1.4 million cars.
The global auto parts market is anticipated to grow at a 6.8% CAGR until 2030. The global auto parts market is developing as a result of technical improvements such as high-performance brake systems and electronic stability control systems.
The adoption of 3D printing technology, as well as the increased demand for hybrid and all-electric vehicles, are also driving market expansion. Moreover, the global automotive motors market will reach $42.86 billion by 2032, expanding at a CAGR of 4.4%.
Considering these conducive trends, let’s look at the fundamentals of the three Auto stocks.
Mercedes-Benz Group AG (MBGAF)
Headquartered in Stuttgart, Germany, MBGAF develops, manufactures, and sells premium and luxury cars and vans. The segments include MBGAF Cars; MBGAF Vans; and Daimler Financial Services.
MBGAF’s forward EV/EBITDA multiple of 6.07 is 36.8% lower than the industry average of 9.59. Its forward Price/Cash Flow multiple of 3.74% is 60.2% lower than the industry average of 9.40.
MBGAF’s trailing-12-month EBIT margin of 12.07% is 60.6% higher than the 7.52% industry average. Its trailing-12-month net income margin of 9.82% is 120.6% higher than the 4.45% industry average.
During its fiscal third quarter, ended September 30, 2023, MBGAF’s revenue stood at €37.20 billion ($39.77 billion), while gross profit came at €8.03 billion ($8.59 billion). Also, its net profit attributable to shareholders of MBGAF and EPS attributable to shareholders of MBGAF stood at €3.64 billion ($3.89 billion) and €3.44, respectively.
The consensus revenue estimate of $166.12 billion for the year ending March 2023 represents a 3.6% increase year-over-year. Its EPS is expected to come in at $14.02 for the same period. It surpassed EPS estimates in three of four trailing quarters. MBGAF’s shares have gained 8.3% over the past month to close the last trading session at $63.99.
MBGAF’s POWR Ratings reflect this promising outlook. The stock has an overall rating of A, equating to a Strong Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
MBGAF also has a B grade for Growth, Value, Momentum, Stability and Quality. It is ranked #4 out of 58 stocks in the Auto & Vehicle Manufacturers industry. Click here to see the additional POWR Ratings for Sentiment for MBGAF.
DENSO Corporation (DNZOY)
Headquartered in Kariya, Japan, DNZOY is engaged in the manufacture and sale of automotive parts. It produces air-conditioning systems, powertrain systems, safety and cockpit systems, and automotive service parts. It also offers industrial and agricultural solutions and household air conditioning equipment.
DNZOY’s forward EV/Sales multiple of 1.03 is 11.7% lower than the industry average of 1.17. Its forward EV/EBITDA multiple of 7.53% is 21.5% lower than the industry average of 9.59.
DNZOY’s trailing-12-month ROCE of 8.05% is 28.1% higher than the 11.19% industry average. Its trailing-12-month ROTA of 4.49% is 13.1% higher than the 3.97% industry average.
DNZOY’s revenues for the second quarter that ended September 30, 2023, increased 16.3% year-over-year to ¥3.51 trillion ($23.50 billion). Its operating profit rose 36.3% over the prior-year quarter to ¥211.80 billion ($1.40 billion). Its net profit attributable to owners of the parent company increased 59.7% year-over-year to ¥168.90 billion ($1.10 billion).
Street expects DNZOY’s revenue to increase 98.5% year-over-year to $47.75 billion for the year ending March 2024. Over the past nine months, the stock has gained 20.8% to close the last trading session at $16.12.
DNZOY’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall rating of A, which equates to a Strong Buy in our proprietary rating system.
It is ranked #3 out of 61 stocks in the A-rated Auto Parts industry. It has an A grade for Growth and a B for Stability and Quality. To see additional DNZOY’s ratings for Growth, Value, Sentiment, and Momentum, click here.
Ituran Location and Control Ltd. (ITRN)
Headquartered in Azor, Israel, ITRN provides location-based telematics services and machine-to-machine telematics products. It has two segments: Telematics Services and Telematics Products.
ITRN’s trailing-12-month EV/Sales of 1.51x is 44% lower than the industry average of 2.69x. Its trailing-12-month EV/EBIT of 7.34x is 63.9% lower than the industry average of 20.36x.
ITRN’s trailing-12-month ROCE of 30.01% is significantly higher than the 0.80% industry average. Its trailing-12-month ROTA of 15.38% is significantly higher than the 0.07% industry average.
ITRN’s revenues for the third quarter ended September 30, 2023, increased 11.5% year-over-year to $81.05 million. Its gross profit rose 13.9% over the prior-year quarter to $39.41 million. The company’s operating income increased 15.2% year-over-year to $16.89 million. Its net income attributable to the company rose 24.3% year-over-year to $12.51 million. Also, its EPS came in at $0.63, representing an increase of 28.6% year-over-year.
Analysts expect ITRN’s EPS to increase 31.8% year-over-year to $2.40 for the year ending December 2023. It has surpassed EPS estimates in three of four trailing quarters. Shares of ITRN has gained 20.4% year-to-date to close the last trading session at $25.43.
It’s no surprise that ITRN has an overall A rating, equating to a Strong Buy in our POWR Ratings system. It has a B grade for Growth, Value, Stability, Sentiment and Quality. It is ranked #2 in the same industry.
Beyond what is stated above, we’ve also rated ITRN for Momentum. Get all ITRN ratings here.
What To Do Next?
43 year investment veteran, Steve Reitmeister, has just released his 2024 market outlook along with trading plan and top 11 picks for the year ahead.
MBGAF shares were trading at $63.51 per share on Tuesday morning, down $0.48 (-0.75%). Year-to-date, MBGAF has declined -2.89%, versus a 20.56% rise in the benchmark S&P 500 index during the same period.
About the Author: Rashmi Kumari
Rashmi is passionate about capital markets, wealth management, and financial regulatory issues, which led her to pursue a career as an investment analyst. With a master's degree in commerce, she aspires to make complex financial matters understandable for individual investors and help them make appropriate investment decisions.
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