Automakers had to cut production in 2021 due to supply chain issues and semiconductor shortages. However, new car production is expected to rebound with improving supply conditions. According to IHS Markit, U.S. new-car sales in 2022 are expected to rise to 15.47 million vehicles from an estimated 15.07 million in 2021. With improving production, auto parts manufacturing companies should benefit.
Moreover, innovations in the automotive industry are bolstering the growth of the auto parts industry. With companies planning to manufacture lightweight and more fuel-efficient vehicles and use the latest technology-led motors and engine radiators, the demand for compatible auto parts is rising. In addition, the new vehicle shortage and the elevated prices drove the demand for used vehicles higher, which increased the need for auto parts for repairs. The auto parts market is expected to reach $299.98 billion by 2025, registering a 3% CAGR.
Given this backdrop, we think auto parts stocks The Goodyear Tire & Rubber Company (GT), Allison Transmission Holdings, Inc. (ALSN), Modine Manufacturing Company (MOD) could be ideal bets now as these stocks are already outperforming the broader market.
The Goodyear Tire & Rubber Company (GT)
GT, together with its subsidiaries, develops, manufactures, distributes, and sells tires and related products and services worldwide. The company’s offerings include various rubber tires for automobiles, trucks, buses, aircraft, motorcycles, earthmoving, and mining equipment.
Last month, GT announced its latest development, of a specially engineered non-pneumatic airless tire (NPT), designed to extend tire life and reduce maintenance activities for Goodyear ventures portfolio company Starship Technologies’ delivery fleet. Earlier, in December 2021, announced the launch of ElectricDrive GT, an ultra-high performance, all-season tire that delivers long-lasting treadwear and a quiet ride for EV drivers and passengers. The new products should enhance the company’s product portfolio.
GT’s net sales increased 42.4% year-over-year to $4.93 billion in the fiscal third quarter ended September 30. Its total segment operating income grew 129.6% from the same period the prior year to $372 million, while its adjusted net income improved 758.3% year-over-year to $206 million. Its adjusted EPS increased 620% from the prior-year period to $0.72.
Street expects the company’s revenue to increase 29.8% year-over-year to $5.16 billion for the fiscal second-quarter ending June 2022. Likewise, the consensus EPS of $1.01 for the same period reflects an improvement of 214.1% from the prior-year period. Moreover, GT has beaten Street EPS estimates in each of the trailing four quarters, which is impressive.
GT’s shares have gained 68% over the past year and 31.6% over the past six months to close its last trading session at $21.39.
GT’s POWR Ratings reflect this promising outlook. The company has an overall rating of B, which translates to Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.
GT has an A grade for Growth and a B grade for Value and Quality. In the 65-stock Auto Parts industry, it is ranked #10. In addition to the POWR Ratings grades we’ve stated above, one can see the GT ratings for Momentum, Stability, and Sentiment here.
Allison Transmission Holdings, Inc. (ALSN)
ALSN operates as the designer, manufacturer, and seller of commercial and defense fully-automatic transmissions for medium-and heavy-duty commercial vehicles and medium-and heavy-duty tactical U.S. defense vehicles worldwide. It offers transmissions for various applications, including distribution, re-fuse, construction, fire, emergency on-highway trucks, school, transit buses, and motor homes.
On February 8, ALSN announced the integration of its Allison 3414 Regional Haul Series™ (RHS), fully automatic transmission into Volvo’s heavy-duty VNL truck, which is available for release. This should support the company’s growth in the heavy-duty day cab tractor market, representing a growth opportunity of $100 million in annual revenue.
Last month, ALSN announced its new investment of $15 million in Autotech Ventures, a venture capital firm that invests in and provides consulting services to early-stage transport technology start-ups. About this investment, Mike Foster, Chief Technology Officer, ALSN, said, “Our collaboration with Autotech and the cutting-edge companies they engage with will allow Allison to continue to diversify our portfolio of next-generation solutions.”
ALSN’s net sales increased 6.6% year-over-year to $567 million in the fiscal third quarter ended September 30. Net income improved 22.1% year-over-year to $94 million, while EPS improved 30.9% from the prior-year quarter to $0.89. Its adjusted EBITDA increased 8.6% from its year-ago value to $189 million.
The consensus revenue estimate of $593.05 million for the fiscal fourth quarter ended December 2021 indicates an increase of 10.9% year-over-year. The consensus EPS estimate of $1.12 for the same period reflects a rise of 49.8% from the same period the prior year.
The stock has gained 12.5% over the past three months and 3.4% over the past month to close the last trading session at $39.30.
ALSN’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall B rating, which translates to Buy in our POWR Rating system. ALSN has a Quality grade of A and a Value grade of B. In the Auto Parts industry, it is ranked #11.
To see the additional POWR Ratings for Growth, Momentum, Stability, and Sentiment for ALSN, click here.
Modine Manufacturing Company (MOD)
MOD provides engineered heat transfer systems and heat transfer components for use in on-and off-highway original equipment manufacturer (OEM) vehicular applications. The company operates through the Building HVAC Systems; and Heavy Duty Equipment and Automotive segments.
In January 2022, MOD’s industrial HVAC coatings division Modine Coatings selected Ripley PR, a B2B public relations agency, to support its communications goals, drive brand awareness, and enhance business growth. This might prove to be beneficial for MOD.
In October 2021, MOD announced reaching a mutual agreement with Dana Incorporated (DAN) regarding the termination of a Securities and Asset Purchase Agreement for the liquid-cooled portion of the company’s automotive business. The company is expected to initiate measures to reduce costs and optimize profit margins and cash flows with the termination.
For the fiscal third quarter ended December 31, MOD’s net sales increased 3.7% year-over-year to $502.20 million. Operating income grew 173% from the prior-year quarter to $79.40 million. Net earnings attributable to MOD improved 137.9% year-over-year to $74.10 million. Its EPS increased 137% from its year-ago value to $1.41.
The consensus revenue estimate of $2.01 billion for the fiscal year ending March 2022 indicates an increase of 11.4% year-over-year. Analysts expect the EPS to come in at $1.16, reflecting a rise of 1.3% year-over-year in the same period.
Over the past five days, the stock has gained 15.7% and 5% intra-day to close its last trading session at $10.69.
It’s no surprise MOD has an overall B rating, which equates to Buy in our proprietary rating system. The stock has an A grade for Value and a B grade for Sentiment. It is ranked #15 in the same industry. Click here to see the MOD’s Growth, Momentum, Stability, and Quality ratings.
GT shares were trading at $21.88 per share on Wednesday afternoon, up $0.49 (+2.29%). Year-to-date, GT has gained 2.63%, versus a -3.67% rise in the benchmark S&P 500 index during the same period.
About the Author: Subhasree Kar
Subhasree’s keen interest in financial instruments led her to pursue a career as an investment analyst. After earning a Master’s degree in Economics, she gained knowledge of equity research and portfolio management at Finlatics.
3 Outperforming Auto Parts Stocks to Buy in February StockNews.com
