The pause on rate hikes and anticipated cuts ahead this year will provide stability across sectors, notably benefiting the auto industry and boosting investors’ confidence. Moreover, growth drivers, such as electrification, development of autonomous technology, digitalization & Industry 4.0, and sustainability initiatives, will shape the industry in the years to come.
Given this backdrop, investors could consider buying robust auto stocks Mercedes-Benz Group AG (MBGAF), Blue Bird Corporation (BLBD), Hyster-Yale Materials Handling, Inc. (HY), and Standard Motor Products, Inc. (SMP), with promising long-term growth potential.
Recently, the Federal Reserve officials unanimously decided against raising the Fed funds rate for the fourth time in a row, which remains at a range between 5.25% and 5.5%, the highest level in almost 23 years. Most economists surveyed by Reuters predict the central bank will cut the federal funds rate in June.
A potential cut in interest rates and positive economic indicators, such as GDP growth and low unemployment rates, could stimulate car buying activity and boost sales in the auto industry.
Moreover, February's new vehicle sales are anticipated to surpass last year’s sales and improve from January's slower performance. As per Cox Automotive, sales volume is forecasted to hit 1.22 million units, up 6.3% from February 2023. The seasonally adjusted annual rate (SAAR) is expected to reach around 15.4 million, a slight increase from last year.
Charlie Chesbrough, Senior Economist at Cox Automotive, attributes January's sluggish sales to adverse weather conditions but expects a rebound in February due to milder weather and increased incentives and discounts.
Besides, global car sales are forecasted to rise from 91 million to 96 million units this year, growing at a 5% to 7% annual rate.
The auto parts market is further driven by increasing demand for automotive customization, the incorporation of advanced technologies like navigation and driver assistance systems, and the growing significance of e-commerce platforms. On top of it, consumers are increasingly investing in high-quality auto parts to improve vehicle performance and aesthetics, boosting the sector.
According to a report by Vantage Market Research, the auto parts market is expected to reach $1.10 trillion by 2030, expanding at a CAGR of 6.8%.
With these encouraging market trends in mind, let's delve into the fundamentals of the four auto stocks.
Mercedes-Benz Group AG (MBGAF)
Based in Stuttgart, Germany, MBGAF operates as a global automotive company. It develops, manufactures, and sells premium and luxury cars and vans under the Mercedes-AMG, Mercedes Benz, Mercedes-Maybach, and Mercedes-EQ brands, as well as related spare parts and accessories. It also offers financing, leasing, car subscription and rental, and other services.
MBGAF distributes an annual dividend of $5.72, which yields 7.28% on the current market price, higher than its four-year average dividend yield of 5.18%. The company’s dividends have increased at a CAGR of 14.8% over the past five years.
Over the past three years, MBGAF’s EBIT has improved at a CAGR of 184.5%. In addition, the company’s net income and EPS have grown at CAGRs of 671% and 691.9%, respectively.
For the fiscal year that ended December 31, 2023, MBGAF’s revenue increased 2.1% year-over-year to €153.22 billion ($165.92 billion). Its adjusted EBIT stood at €19.66 billion ($21.29 billion). The company’s net profit and EPS stood at €14.53 billion ($15.73 billion) and €13.46, respectively.
Also, the company’s free cash flow of the Industrial Business grew 39.2% from the previous year to €11.32 billion ($12.26 billion).
Analysts expect MBGAF to report EPS and revenue of $12.85 and $165.01 billion for the fiscal year 2024, respectively. Moreover, the company has exceeded the consensus EPS estimates in three of the trailing four quarters, which is impressive.
Over the past three months, the stock has gained 24.9% to close the last trading session at $79.40.
MBGAF’s POWR Ratings reflect its promising outlook. The stock has an overall rating of A, which translates to a Strong Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.
The stock has a B grade for Growth, Value, Momentum, Stability, and Quality. Within the Auto & Vehicle Manufacturers industry, MBGAF is ranked #4 out of 58 stocks.
To access all MBGAF’s ratings, click here.
Blue Bird Corporation (BLBD)
BLBD designs, engineers, manufactures, and sells school buses and related parts in the United States, Canada, and internationally. The company operates through Bus and Parts segments.
The company’s revenue has increased at a CAGR of 12.4% over the past three years. Its EBITDA has improved at a CAGR of 41.6% over the same timeframe, and its net income and EPS have grown at CAGRs of 77.4% and 67.1%, respectively.
BLBD’s net sales for the fiscal 2024 first quarter ended December 31, 2023, increased 34.8% year-over-year to $317.66 million. Its non-GAAP net income and EPS came in at $29.66 million and $0.91, respectively, compared to a non-GAAP net loss and loss per share of $9.77 million and $0.30, respectively.
The company's ongoing business transformation has yielded positive outcomes, prompting an increase in guidance for the fiscal year 2024. Its net revenue is now projected to range between $1.15 billion and 1.25 billion, with adjusted EBITDA anticipated to be $120-140 million and adjusted free cash flow expected to reach $60-70 million.
Street expects BLBD’s revenue to increase 10.6% year-over-year to $1.25 billion for the fiscal year ending September 2024. Its EPS for the same period is expected to increase 109.4% year-over-year to $2.24. Additionally, the company has surpassed the consensus EPS and revenue estimates in each of the trailing four quarters.
Over the past year, shares of BLBD have gained 60.9% to close the last trading session at $32.67.
BLBD’s POWR Ratings reflect its rosy prospects. The stock has an overall rating of B, equating to a Buy in our proprietary rating system.
Within the Auto & Vehicle Manufacturers industry, the stock is ranked #10 out of 58 stocks. BLBD has a B grade for Growth and Quality.
In addition to the POWR Ratings stated above, one can access BLBD’s Value, Momentum, Stability, and Sentiment ratings here.
Hyster-Yale Materials Handling, Inc. (HY)
HY designs, engineers, manufactures, sells, and services a line of lift trucks, attachments, and aftermarket parts globally. It markets its products primarily under the Hyster and Yale brand names to independent Hyster and Yale retail dealerships.
On February 13, 2023, HY’s Board of Directors declared a regular cash dividend of 32.5 cents ($0.325) per share, payable on both the Class A and Class B common stock on March 15, 2024. The company’s annual dividend rate of $1.30 per share yields 1.85% on prevailing share prices, compared to a four-year average dividend yield of 2.98%.
Over the past three years, HY’s revenue has grown at a CAGR of 13.6%. Its EBITDA and EBIT have improved at respective CAGRs of 42.3% and 66.6% and 26.2% and 42.8% over the same period. Also, the company’s net income and EPS have increased at CAGRs of 50.3% and 48.5%, respectively.
For the fiscal fourth quarter that ended December 31, 2023, HY’s revenues increased 4.3% year-over-year to $1.03 billion. Its operating profit came in at $48.70 million, up 146% from the year-ago quarter. The company’s net income attributable to stockholders rose 231.6% and 225% year-over-year to $25.20 million and $1.43 per share, respectively.
Analysts expect HY’s EPS and revenue for the fiscal first quarter (ending March 2024) to rise 19.4% and 2.1% year-over-year to $1.85 and $1.02 billion, respectively. Moreover, the company topped the consensus revenue estimates in each of the trailing four quarters.
HY’s stock has surged 79.1% over the past year to close the last trading session at $58.33.
HY’s sound fundamentals are reflected in its POWR Ratings. The stock has an overall rating of B, which translates to a Buy in our proprietary rating system.
The stock has an A grade for Growth and Value. It is ranked #10 among 62 stocks in the A-rated Auto Parts industry.
Click here to see additional ratings of HY for Momentum, Stability, Sentiment, and Quality.
Standard Motor Products, Inc. (SMP)
SMP manufactures and distributes automotive parts used in the maintenance, repair, and service of vehicles in the automotive aftermarket industry in the United States and internationally. The company operates through Engine Management and the Temperature Control segments.
Over the past three years, SMP’s revenue has increased at a 6.4% CAGR. The company’s EBIT and EBITDA have grown at CAGRs of 4.1% and 4.4% over the same timeframe, respectively. Further, its total assets and levered free cash flow have improved at respective CAGRs of 10.6% and 15%.
In the fourth quarter that ended December 31, 2023, SMP reported net sales of $290.76 million. The company’s non-GAAP earnings from continuing operations came in at $8.16 million, or $0.37 per share, respectively. As of December 2023, its cash and cash equivalents were $32.53 million, compared to $21.15 million as of December 2022.
Street expects SMP’s revenue to increase 3.7% year-over-year to $1.41 billion for the fiscal year 2024. The company’s EPS for the ongoing year is expected to increase 11.8% year-over-year to $3.26.
SMP’s shares lost 3.6% intraday to close the last trading session at $31.92.
SMP’s POWR Ratings reflect this promising outlook. The stock has an overall rating of B, which translates to a Buy in our proprietary rating system.
Within the A-rated Auto Parts industry, SMP is ranked #29 out of 62 stocks. It has a B grade for Growth and Quality.
Beyond the POWR Ratings highlighted above, we have also rated SMP for Value, Momentum, Sentiment, and Stability. Get all SMP ratings here.
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MBGAF shares were trading at $80.08 per share on Thursday morning, up $0.68 (+0.86%). Year-to-date, MBGAF has gained 15.89%, versus a 6.98% rise in the benchmark S&P 500 index during the same period.
About the Author: Kritika Sarmah
Her interest in risky instruments and passion for writing made Kritika an analyst and financial journalist. She earned her bachelor's degree in commerce and is currently pursuing the CFA program. With her fundamental approach, she aims to help investors identify untapped investment opportunities.
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