The auto parts industry is thriving due to increased car demand, technological advancements, and government incentives. In addition, improved supply chains and environmental awareness are also boosting market growth and sales. This sector plays a vital role in maintaining vehicle performance and durability, showing robustness amid the growing auto industry.
Given this backdrop, investors could consider buying fundamentally strong auto stocks such as Allison Transmission Holdings, Inc. (ALSN), Garrett Motion Inc. (GTX), and Ituran Location and Control Ltd. (ITRN) for stability.
This year, the auto industry shows promise despite slight dips in consumer sentiment and prices. The used car sector is strong due to increased spending, lower loan costs, and higher tax refunds. Additionally, high vehicle prices are extending car ownership, which boosts demand for auto parts as older cars require more maintenance. Together, these factors contribute significantly to rising auto part sales.
Statista forecasts that revenues from automotive parts, accessories, and tire stores in the U.S. will reach $92.3 billion in 2024. Simultaneously, the rising adoption of cutting-edge automotive technologies like Advanced Driver Assistance Systems (ADAS), AI and IoT components, Hyper automation, integrated software solutions, and advanced infotainment in modern vehicles is driving an increase in demand for auto parts.
Furthermore, the use of 3D printing in making auto parts boosts customization, design intricacy, and production speed, giving manufacturers an edge. Additionally, the rising preference for parts from sustainable sources has energized the auto parts market. Therefore, the auto parts market is projected to reach $1.10 trillion by the end of the decade, recording a CAGR of 6.8%.
Considering these conducive trends, let’s analyze the fundamental aspects of the three Auto Parts stocks mentioned above, starting with the third choice.
Stock #3: Allison Transmission Holdings, Inc. (ALSN)
Headquartered in Indianapolis, Indiana, ALSN and its subsidiaries design, manufacture, and sell fully automatic transmissions for medium- and heavy-duty commercial vehicles and medium- and heavy-tactical U.S. defense vehicles, as well as electrified propulsion systems worldwide.
On May 16, 2024, ALSN announced a $10 million investment in EnerTech Capital to enhance its innovation pipeline in mobility technologies, including electrification, connectivity, and autonomy. This strategic partnership provides ALSN access to EnerTech's network of high-tech companies and market insights.
On April 24, 2024, ALSN announced that International Truck integrated Allison fully automatic transmissions into S13-equipped RH and HX series trucks, offering the 3414 Regional Haul Series and 4000 Series as the exclusive fully automatic transmission options.
International Truck has partnered with Allison Transmissions to enhance performance, fuel efficiency, and productivity, showcasing their commitment to providing innovative solutions for their customers.
In terms of forward non-GAAP P/E, ALSN’s 9.32x is 50% lower than the 18.64x industry average. Its 7.39x forward EV/EBITDA is 34.2% lower than the 11.22x industry average. Likewise, its 8.63x forward EV/EBIT is 44.1% lower than the 15.45x industry average.
For the fiscal first quarter that ended March 31, 2024, ALSN’s net sales and gross profit stood at $789 million and $366 million, up 6.5% and 1.4% from the year-ago value, respectively.
For the same quarter, its net income amounted to $169 million while its net earnings per share attributable to common stockholders rose 2.7% year-over-year to $1.90. Moreover, its adjusted EBITDA increased 4.7% over the prior-year quarter to $289 million.
Analysts expect ALSN’s revenue for the quarter ending June 30, 2024, to increase marginally year-over-year to $788.84 million. Its EPS for the same quarter is expected to increase 3.4% year-over-year to $1.99. ALSN surpassed the consensus EPS estimates in three of the trailing four quarters. Over the past year, the stock has gained 42.5% to close the last trading session at $73.06. Its 24-month beta is 0.84.
ALSN’s strong fundamentals are reflected in its POWR Ratings. It has an overall rating of A, which translates to a Strong Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
It is ranked #6 out of 61 stocks in the B-rated Auto Parts industry. It has an A grade for Quality and a B for Stability. To see ALSN’s Growth, Value, Momentum, and Sentiment ratings, click here.
Stock #2: Garrett Motion Inc. (GTX)
Based in Rolle, Switzerland, GTX and its subsidiaries design, manufacture, and sell turbocharging, air and fluid compression, and high-speed electric motor technologies for original equipment manufacturers and distributors worldwide.
In terms of forward EV/EBIT, GTX’s 7.44x is 46.7% lower than the 13.96x industry average. Its 0.91x forward EV/Sales is 26.1% lower than the 1.23x industry average. In addition, its 0.53x forward Price/Sales is 40.2% lower than the 0.89x industry average.
GTX’s net sales for the first quarter ended March 31, 2024, were $915 million, with a gross profit of $172 million. The company’s net income was $66 million. Additionally, its adjusted EBITDA was $151 million, and its adjusted free cash flow was $68 million.
Additionally, as of March 31, 2024, GTX’s total current liabilities stood at $1.32 billion, compared to $1.38 billion as of December 31, 2023.
Street expects GTX’s EPS and revenue for the quarter ending September 30, 2024, to increase 33.5% and 1.7% year-over-year to $0.31 and $976.50 million, respectively. Over the past six months, the stock has gained 17.8% to close the last trading session at $9.15. Its 24-month beta is 0.51.
GTX’s POWR Ratings reflect its positive outlook. It has an overall rating of A, equating to a Strong Buy in our proprietary rating system.
In the same industry, GTX is ranked #2. It has a B grade for Value, Stability, Sentiment, and Quality. Click here to see GTX’s Growth and Momentum ratings.
Stock #1: Ituran Location and Control Ltd. (ITRN)
Headquartered in Azor, Israel, ITRN and its subsidiaries provide location-based telematics services and machine-to-machine telematics products. They operate through two segments: Telematics Services and Telematics Products.
In terms of trailing-12-month EV/Sales, ITRN’s 1.50x is 52.7% lower than the 3.17x industry average. Similarly, its 7.28x trailing-12-month EV/EBIT is 71.4% lower than the 25.44x industry average.
During the first quarter ended March 31, 2024, ITRN's revenues increased 9.2% year-over-year to $85.03 million. Its gross profit rose 11.3% over the prior-year quarter to $39.54 million.
The company’s operating income increased 7% year-over-year to $17.03 million. Its net income attributable to the company rose 14.8% year-over-year to $13.04 million. Also, its EPS came in at $0.66, representing an increase of 17.9% year-over-year.
For the quarter ending June 30, 2024, ITRN’s EPS is expected to increase marginally year-over-year to $0.61. Over the past year, the stock has gained 8.8% to close the last trading session at $26.73. Its 24-month beta is 0.70.
ITRN’s solid prospects are reflected in its POWR Ratings. It has an overall rating of A, which translates to a Strong Buy in our proprietary rating system.
It has an A grade for Stability, and Quality and a B for Value, and Sentiment. Within the Auto Parts industry, it is ranked first. Beyond the grades mentioned above, we have also rated ITRN for Growth, and Momentum. Get all ratings here.
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ALSN shares were trading at $74.01 per share on Friday afternoon, up $0.95 (+1.30%). Year-to-date, ALSN has gained 28.12%, versus a 12.94% rise in the benchmark S&P 500 index during the same period.
About the Author: Abhishek Bhuyan
Abhishek embarked on his professional journey as a financial journalist due to his keen interest in discerning the fundamental factors that influence the future performance of financial instruments.
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