The uptick in demand for new cars and EVs, rising usage of shared mobility services, and the integration of advanced technologies have enabled the auto industry to grow substantially.
Therefore, fundamentally robust auto stocks Ferrari N.V. (RACE), Credit Acceptance Corporation (CACC), and Allison Transmission Holdings, Inc. (ALSN) could be wise portfolio additions this month.
In January, new vehicle sales in the U.S. were 1,082,620 units, up 2.2% year-over-year. Consumer interest in electric vehicles has been rising over the past years, driven by environmental consciousness, government incentives, advancements in battery technology boosting range, and a growing charging infrastructure. According to Cox Automotive, U.S. consumers bought 1.19 million all-EVs last year.
According to Kelley Blue Book estimates, in 2023, the EV share of the total U.S. vehicle market stood at 7.6%, up from 5.9% in 2022. This year, the EV share of the U.S. market is projected to reach 10%.
Additionally, cutting-edge technologies like Gen AI are revolutionizing the auto industry, improving areas including design, forecasting, manufacturing processes, production, and customer experience personalization. This digital trend among companies incites GenAI’s growth within the auto industry, anticipating the global market for Gen AI in the auto industry to surpass $2 billion by 2032.
The past few years have witnessed a transformational upsurge in the car rental industry, driven by global travel, tourism activities, and the increasing popularity of ride-sharing services, compounded with the demand for flexible transport solutions. Car rental agents in the U.S. are projected to reach 108.50 million by 2027.
In light of these encouraging trends, let's look at the fundamentals of the three auto stocks.
Ferrari N.V. (RACE)
Headquartered in Maranello, Italy, RACE designs, engineers, produces, and sells luxury performance sports cars worldwide. The company offers range, special series, Icona, and supercars; limited edition supercars and one-off cars; and track cars.
On February 26, RACE purchased under the €350 million ($378.92 million) share buyback program announced on November 7, 2023, as the fourth tranche of the multi-year share buyback program of approximately €2 billion ($2.17 billion), which is expected to be executed by 2026 in line with the disclosure made during the 2022 Capital Markets Day.
The total invested consideration has been €121.88 million ($131.95 million) for 370,670 common shares purchased on the EXM and $30.30 million for 83,738 common shares purchased on the NYSE.
On February 22, RACE’s board of directors intended to recommend to the company’s shareholders a dividend distribution to the holders of common shares of €2.44 per common share, with an increase of approximately 35% year-over-year and corresponding to a total distribution of approximately €440 million ($476.35 million).
It pays an annual dividend of $2.64 per share, which translates to a dividend yield of 0.62% on the current share price. Its four-year average yield is 0.62%. RACE’s dividend payments have grown at CAGRs of 17.6% and 18.1% over the past three and five years, respectively.
RACE’s trailing-12-month cash from operations of $1.90 billion is 598.4% higher than the industry average of $271.36 million. Its trailing-12-month EBIT and net income margins of 26.99% and 20.97% are 258.6% and 342.4% higher than the industry averages of 7.53% and 4.74%, respectively.
For the fiscal fourth quarter that ended December 31, 2023, RACE’s net revenues and adjusted EBIT increased 11.3% and 24.8% year-over-year to €1.52 billion ($1.65 billion) and €372 million ($402.74 million), respectively. Moreover, its adjusted EBITDA stood at €558 million ($604.10 million), up 19% from the prior-year quarter.
For the same quarter, its adjusted net profit and adjusted EPS stood at €294 million ($318.29 million) and €1.62, up 33% and 33.9% from the year-ago quarter, respectively.
Street expects RACE’s revenue and EPS for the fiscal first quarter ending March 2024 to increase 8% and 13.3% year-over-year to $1.70 billion and $2.02, respectively. The company surpassed consensus EPS estimates in each of the trailing four quarters and consensus revenue estimates in three of the trailing four quarters, which is impressive.
The stock has gained 63.1% over the past year to close the last trading session at $424.77. Over the past nine months, it has gained 46.1%.
RACE’s robust prospects are reflected in its POWR Ratings. The stock has an overall B rating, equating to Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.
The stock has an A grade for Quality and a B for Stability and Sentiment. It is ranked #22 out of 53 stocks within the Auto & Vehicle Manufacturers industry.
Click here for the additional POWR Ratings for RACE (Growth, Value, and Momentum).
Credit Acceptance Corporation (CACC)
CACC provides financing programs and related products and services in the U.S. The company advances money to automobile dealers in exchange for the right to service the underlying consumer loans; and buys the consumer loans from the dealers and keeps the amount collected from the consumers.
On February 27, CACC completed a $200 million asset-backed non-recourse secured financing. Pursuant to this transaction, the company conveyed loans having a value of approximately $250.10 million to a wholly owned special purpose entity that will transfer the loans to a trust that will issue three classes of notes.
The financing will have an expected average annualized cost of approximately 7.8%, including placement agent fees and other costs, and it will revolve for 36 months, after which it will amortize based on the cash flows on the conveyed loans.
On February 16, CACC extended the $100 million asset-backed non-recourse secured financing that it entered on January 29, 2021, and to which it refers as Term ABS 2021-1. Under the amendment effecting the extension, the date on which the financing will cease to revolve has been extended from December 16, 2024, to February 17, 2026.
CACC’s trailing-12-month cash from operations of $1.20 billion is 717.2% higher than the industry average of $147.31 million. Its trailing-12-month ROCE and ROTA of 16.94% and 3.76% are 57.4% and 243.9% higher than the industry averages of 10.76% and 1.09%, respectively.
For the fiscal fourth quarter that ended December 31, 2023, CACC’s adjusted revenue increased 2.7% year-over-year to $366.10 million, while income before provision for income taxes stood at $116.40 million. For the same quarter, its adjusted net income and adjusted net income per share stood at $129.10 million and $10.06, respectively.
Street expects CACC’s revenue for the fiscal first quarter ending March 2024 to increase marginally year-over-year to $455.75 million. Its EPS is expected to be $9.21 for the same quarter. The company surpassed consensus EPS estimates in three of the trailing four quarters.
The stock has gained 24.6% over the past year to close the last trading session at $553.60. Over the past nine months, it has gained 24.3%.
CACC’s solid fundamentals are reflected in its POWR Ratings. The stock has an overall rating of B, translating to Buy in our proprietary rating system.
CACC has an A grade for Quality and a B for Momentum. Within the 20-stock Auto Dealers & Rentals industry, it is ranked #3.
Beyond what we’ve stated above, we have also rated the stock for Growth, Value, Stability, and Sentiment. Get all ratings of CACC here.
Allison Transmission Holdings, Inc. (ALSN)
ALSN designs, manufactures, and sells fully automatic transmissions for medium and heavy-duty commercial vehicles and medium and heavy-tactical U.S. defense vehicles, and electrified propulsion systems worldwide.
On February 21, ALSN’s Board of Directors approved an increase in the company’s quarterly dividend to $0.25 per share on the company’s common stock and declared a cash dividend of $0.25 per share on the company’s common stock for the first quarter of 2024. The dividend is payable to the stockholders on March 15.
ALSN has paid dividends for 11 consecutive years, with the recent dividend increment being the fifth consecutive year of dividend growth. This demonstrates its unwavering commitment to prudent balance sheet management and capital allocation.
It pays an annual dividend of $1 per share, which translates to a dividend yield of 1.33% on the current share price. Its four-year average yield is 1.83%. ALSN’s dividend payments have grown at CAGRs of 2.6% and 9.4% over the past three and five years, respectively.
On February 20, ALSN’s Allison Ventures strategically invested in Niron Magnetics, a pioneering company in the field of sustainable non-rare earth permanent magnets. This investment marks a significant milestone in the advancement of clean energy solutions and the reduction of reliance on critical materials.
The strategic partnership between Allison Ventures and Niron Magnetics addresses the growing demand for sustainable and environmentally friendly solutions in commercial-duty mobility.
ALSN’s trailing-12-month cash from operations of $784 million is 159.8% higher than the industry average of $301.76 million. Its trailing-12-month EBIT and net income margins of 30.54% and 22.17% are 212.1% and 274.7% higher than the industry averages of 9.79% and 5.92%, respectively.
For the fiscal fourth quarter that ended December 31, 2023, ALSN’s net sales and gross profit stood at $775 million and $371 million, up 7.9% and 9.8% year-over-year, respectively. Moreover, its adjusted EBITDA increased 13.1% from the prior-year quarter to $277 million.
For the same quarter, its net income and net earnings per share attributable to common stockholders stood at $170 million and $1.91, up 20.6% and 25.7% from the year-ago quarter, respectively.
Street expects ALSN’s revenue and EPS for the fiscal first quarter ending March 2024 to increase 3.9% and 1.3% year-over-year to $769.80 million and $1.87, respectively. The company surpassed consensus EPS estimates in each of the trailing four quarters and consensus revenue estimates in three of the trailing four quarters.
The stock has gained 58.1% over the past year to close the last trading session at $75.33. Over the past nine months, it has gained 54.6%.
ALSN’s POWR Ratings reflect its positive prospects. The stock has an overall A rating, equating to a Strong Buy in our proprietary rating system.
ALSN has an A grade for Quality and a B for Sentiment. Within the A-rated 62-stock Auto Parts industry, it is ranked #8.
To see additional POWR Ratings for Growth, Value, Momentum, and Stability for ALSN, click 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.
RACE shares were unchanged in premarket trading Friday. Year-to-date, RACE has gained 25.51%, versus a 6.89% rise in the benchmark S&P 500 index during the same period.
About the Author: Neha Panjwani
From her school days, Neha harbored a profound fascination for finance, a passion that steered her toward a career as an investment analyst following the completion of her bachelor's degree in commerce. Currently enrolled in the CFA program, Neha is dedicated to further enriching her comprehension of investment fundamentals. Neha's primary objective is to aid retail investors in discerning optimal investment opportunities by diligently evaluating crucial aspects of financial instruments, with a primary focus on stocks and ETFs. Her commitment lies in empowering individuals to make informed and strategic investment decisions in the dynamic world of finance.
3 Big Auto Stocks to Own for Quality Control in March StockNews.com
