The prospects of the auto parts industry appear promising due to growing new vehicle sales, rising popularity of EVs globally, and other continued innovations in automotive technology. Also, the surge in e-commerce platforms expanded the reach of auto parts retailers, driving the overall industry growth.

Given the industry’s optimistic outlook, it could be wise to add quality auto stocks LKQ Corporation (LKQ), Visteon Corporation (VC), and Commercial Vehicle Group, Inc. (CVGI) to your portfolio for massive growth potential.

The auto parts market is a dynamic and crucial segment responsible for ensuring the smooth functioning and longevity of vehicles. The industry’s growth is driven by continuous innovation in automotive technology, rising fuel-efficient vehicle demand, and growing emphasis on vehicle safety features.

Rising income levels, growing population, and better availability of credit primarily contribute to more people purchasing new vehicles, thus driving demand for auto parts. According to Cox Automotive, new vehicle sales in February are expected to show gains over the last year and improvement from January.

Sales volume this month is anticipated to total 1.22 million units, up 6.3% from February 2023.

As per the Vantage Market Research report, the auto parts market is expected to reach $1.10 trillion by 2030, growing at a CAGR of 6.8% during the forecast period. Critical drivers like digital transformation, sustainable practices, supply chain optimization, and the electric vehicle revolution will contribute to the market’s growth and profitability.

Technological advancements like EVs, hybrid systems, and advanced driver-assistance systems (ADAS) require specialized auto parts. Also, government regulations and safety standards often require updated or improved components, leading to increased demand for new parts.

Furthermore, the growing trends of vehicle customization and aftermarket modifications will boost the industry prospects, backed by consumers seeking better vehicle performance and aesthetic investment in high-quality auto parts.

In light of these favorable trends, let’s look at the fundamentals of the three Auto Parts stocks, beginning with number 3.

Stock #3: LKQ Corporation (LKQ)

LKQ engages in the distribution of replacement parts, components, and systems used in the repair and maintenance of vehicles and specialty vehicle aftermarket products and accessories. The company operates through four segments: Wholesale-North America; Europe; Specialty; and Self Service.

On October 26, 2023, LKQ announced that its Board of Directors declared a quarterly cash dividend of $0.30 per share of common stock, paid on November 30, 2023, to stockholders of record at the close of business on November 16, 2023. The dividend reflects a 9% increase over the prior quarterly dividend of $0.275.

LKQ pays an annual dividend of $1.20, which translates to a yield of 2.30% at the current share price. Its four-year average dividend yield is 0.96%.

On October 25, LKQ sold GSF Car Parts to Epiris Fund III, a private equity fund based in the United Kingdom. This divestiture fulfills the company’s undertaking to the UK’s Competition and Markets Authority to sell the GSF business related to its acquisition of Uni-Select Inc.

Rick Galloway, Senior Vice President and Chief Financial Officer, said, “The proceeds from the sale of GSF will be utilized to reduce our total debt, putting us in a better position to begin implementing a more balanced capital allocation strategy, which includes share repurchases.”

In terms of forward EV/EBIT, LKQ is trading at 11.90x, 13.9% lower than the industry average of 13.82x. Also, the stock’s forward non-GAAP P/E multiple of 12.95 is 18.8% lower than the industry average of 15.95. However, its forward EV/Sales of 1.26x is 2.3% higher than the industry average of 1.23x.

During the fourth quarter that ended December 31, 2023, LKQ’s revenue increased 16.7% year-over-year to $3.50 billion. Its gross margin grew 14.4% from the year-ago value to $1.40 billion. However, the company’s operating income came in at $277 million, a decline of 5.5% from the previous year’s quarter.

In addition, the company’s net income attributable to LKQ stockholders came in at $177 million and $0.66 per share, down 8.8% and 8.3% from the prior year’s quarter, respectively.

Analysts expect LKQ’s revenue for the first quarter (ending March 2024) to increase 12.6% year-over-year to $3.77 billion, but its EPS for the ongoing quarter is expected to decline 9% year-over-year to $0.95. Further, the company has surpassed the consensus revenue and EPS estimates in three of the trailing four quarters.

LKQ’s stock has surged 10.1% over the past month to close the last trading session at $52.44. However, over the past year, the stock has plunged 8.7%.

LKQ’s mixed outlook is reflected in its POWR Ratings. The stock has an overall rating of C, which translates to a Neutral in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, each weighted to an optimal degree.

The stock has a C for Growth, Stability, Value, and Sentiment. Within the A-rated Auto Parts industry, LKQ is ranked #38 of 62 stocks.

Click here to access additional ratings of LKQ.

Stock #2: Visteon Corporation (VC)

VC is an automotive technology company, designs, manufactures, and sells automotive electronics and connected car solutions for vehicle manufacturers worldwide. The company provides instrument clusters, information displays, and infotainment and connected car solutions.

During the fiscal year 2023, VC repurchased about $106 million of shares during 2023 under the $300 million share repurchase authorization announced by the company in March 2023.

In 2023, VC launched 129 new products. Key product launches in the fourth quarter included a SmartCore™ cockpit domain controller and 12” display for the JMC-Ford Ranger in China, a SmartCore™ cockpit domain controller and 10” display for the Mahindra XUV, and a 12" digital cluster for the Nissan Rogue for the North American market.

These product launches continue to build the foundation for VC’s long-term market outperformance.

VC’s trailing-12-month net income margin of 12.19% is 163.8% higher than the 4.66% industry average. Also, the stock’s ROCE and ROTA of 56.74% and 17.82% are considerably higher than the respective industry averages of 11.40% and 4.16%.

In terms of forward non-GAAP P/E, VC is trading at 13.58x, 14.9% lower than the industry average of 15.95x. Further, the stock’s forward EV/Sales multiple of 0.76 is 38.1% lower than the industry average of 1.23. Likewise, its forward Price/Sales of 0.76x is 16.6% lower than the industry average of 0.91x.

For the fourth quarter that ended December 31, 2023, VC reported net sales of $990 million. The company’s income before income taxes grew 37.5% from the year-ago value to $77 million. Also, net income attributable to VC and EPS came in at $366 million and $12.98, up 976.4% and 1000% year-over-year, respectively.

Furthermore, the company’s adjusted EBITDA increased 13.6% year-over-year to $117 million. Its total assets, as of December 31, 2023, stood at $2.73 billion, compared to $2.45 billion as of December 31, 2022.

As per full-year 2024 guidance, VC anticipates its sales to be in the range of $4 billion to $4.20 billion. The company expects its adjusted EBITDA to be in the range of $470 million to $500 million and adjusted free cash flow in the range of $155 million to $185 million.

Analysts expect VC’s revenue and EPS for the first quarter (ending March 2024) to increase 1.6% and 34.6% year-over-year to $982.25 million and $1.68, respectively. Moreover, the company has topped the consensus EPS estimate in three of the four trailing quarters.

Over the past month, VC’s stock has declined 3.4% to close the last trading session at $114.90.

VC’s POWR Ratings reflect its bright prospects. The stock has an overall grade of B, translating to a Buy in our proprietary rating system.

VC has a B grade for Quality. The stock is ranked #24 among 62 stocks within the A-rated Auto Parts industry.

To see the other ratings of VC for Growth, Momentum, Sentiment, Value, and Stability, click here.

Stock #1: Commercial Vehicle Group, Inc. (CVGI)

CVGI designs, manufactures, produces, and sells components and assemblies in North America, Europe, and the Asia-Pacific regions. It operates in four segments: Vehicle Solutions; Electrical Systems; Aftermarket & Accessories; and Industrial Automation. The company offers electrical wire harness assemblies and panel assemblies.

On February 1, 2024, CVGI announced the sale of its FinishTEK business to Rowmark LLC, a leading manufacturer of engravable sheet plastic for the awards, engraving and signage markets. FinishTEK is a hydrographic and paint decorator with 95,000 square feet of specialized manufacturing and warehouse space.

“As part of our strategy to drive revenue growth, primarily in our electrical systems business and improve our margins, we continually evaluate our portfolio of businesses and product lines for strategic fit and continued investment. This is a positive transaction for both companies and continues to optimize CVG’s portfolio toward its core growth businesses,” said James Ray, President and CEO of CVG.

On September 26, 2023, CVGI opened its new state-of-the-art manufacturing facility in Tangier, Morocco. The expansion reflects CVGI's commitment to its global electrification business growth and its first significant presence in Africa. The plant will initially offer nearly 30,000 sq. ft. of manufacturing space and produce electrical wire harnesses for the automotive industry.

In terms of forward EV/EBITDA, CVGI is trading at 4.88x, 58.6% lower than the industry average of 11.78x. Further, the stock’s forward Price/Sales multiple of 0.21 is 85.5% lower than the industry average of 1.43. Likewise, its forward Price/Book of 1.43x is 47.3% lower than the industry average of 2.72x.

For the third quarter that ended on September 30, 2023, CVGI reported revenues of $246.69 million. The company’s adjusted gross profit increased 23.8% year-over-year to $33.99 million. Its adjusted operating income was $12.52 million, up 17.9% from the prior year’s quarter.

Additionally, the company’s adjusted net income and adjusted EPS of $7.34 million and $0.22 indicate growth of 44.5% and 46.7% year-over-year, respectively. Its adjusted EBITDA rose 16.6% from the previous year’s period to $16.61 million.

Street expects CVGI’s EPS for the fiscal year (ended December 2023) to grow 88.2% year-over-year to $0.96. The company’s revenue is estimated to increase 1.5% year-over-year to $996.81 million for the same period.

Shares of CVGI have gained 3.4% over the past month and 5.4% over the past three months to close the last trading session at $6.67.

CVGI’s sound fundamentals are reflected in its POWR Ratings. The stock has an overall rating of A, which translates to a Strong Buy in our proprietary rating system.

CVGI has an A grade for Value and a B for Sentiment, Growth, and Quality. It is ranked #6 among 62 stocks in the A-rated Auto Parts industry.

In addition to the POWR Ratings we’ve stated above, we also have CVGI ratings for Momentum and Stability. Get all CVGI 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.

2024 Stock Market Outlook >

LKQ shares were unchanged in premarket trading Tuesday. Year-to-date, LKQ has gained 9.73%, versus a 6.45% rise in the benchmark S&P 500 index during the same period.

Mangeet’s keen interest in the stock market led her to become an investment researcher and financial journalist. Using her fundamental approach to analyzing stocks, Mangeet’s looks to help retail investors understand the underlying factors before making investment decisions.

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