Increased demand for vehicles and escalating technological advancements within the automotive industry could steer the auto parts industry toward a promising growth path.
Therefore, auto parts stocks Modine Manufacturing Company (MOD), Garrett Motion Inc. (GTX), Hyster-Yale Materials Handling, Inc. (HY), Miller Industries, Inc. (MLR) and Gates Industrial Corporation plc (GTES) could be solid buys now.
Before diving deeper into their fundamentals, let’s discuss why the auto parts industry is well-positioned for growth.
The auto parts industry will likely benefit from U.S. new vehicle sales growth this year. According to the National Automobile Dealers Association (NADA), total new vehicle sales for 2023 are expected to be 15.4 million units. Globally, sales of new vehicles are expected to reach 86.8 million units, surpassing the previous estimate of 86.4 million units.
In addition, the International Energy Agency’s (IEA) projections suggest a 35% year-over-year surge in EV sales for 2023, reaching 14 million units. Such explosive expansion places EVs on track to capture an even larger slice of the overall car market, potentially soaring to 18% by the end of 2023.
Furthermore, the auto parts industry is set for robust growth in the long term because of the increasing demand for automotive customization, the introduction of advanced technologies like navigation systems and driver assistance systems, and the rise of e-commerce platforms offering automotive parts.
The global auto parts manufacturing market is projected to achieve a 6.3% CAGR and reach $939.21 billion by 2028.
Considering these conducive trends, let’s look at the fundamentals of the above-mentioned Auto Parts stocks, starting with number 5.
Stock #5: Modine Manufacturing Company (MOD)
MOD provides engineered heat transfer systems and heat transfer components for on- and off-highway Original Equipment Manufacturer (OEM) vehicular applications. It operates through the broad segments of Climate Solutions and Performance Technologies.
On October 16, MOD introduced a new electric heating line called Amp Dawg™ for the residential market. This expansion of product offerings allows the company to meet the needs of homeowners seeking electric heating solutions for spaces like garages and workshops.
In the same month, MOD announced its plans to expand production of its EVantage thermal management systems to Europe starting in 2024. This expansion strengthens MOD's position in the growing global commercial EV market and offers European customers high-quality thermal management solutions.
MOD’s net sales for the fiscal second quarter that ended June 30, 2023, increased 15% year-over-year to $622.40 million. Its gross profit increased 53.4% year-over-year to $127.90 million.
Its operating income increased 159.8% from the prior-year quarter to $66.50 million. The company’s net earnings rose 216.8% from the previous year's figure to $45.30 million. Additionally, its adjusted earnings per share rose 165.6% year-over-year to $0.85.
MOD’s revenue grew at a CAGR of 9.9% over the past three years. Its EBITDA grew at a CAGR of 29.5% over the past three years. Moreover, its EBIT grew at a CAGR of 73.4% over the same period.
Analysts expect MOD’s EPS and revenue for the quarter ending December 2023 to increase 34.9% and 9.6% year-over-year to $0.65 and $613.85 million, respectively. It surpassed the consensus EPS estimates in each of the trailing four quarters, which is impressive.
Over the past year, the stock has gained 180.1% to close the last trading session at $41.57. It has also increased 89.3% over the past six months.
MOD’s positive outlook is reflected in its POWR Ratings. It has an overall rating of B, equating to a Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
It has a B grade for Growth, Sentiment, and Quality. It is ranked #15 out of 60 stocks in the A-rated Auto Parts industry. To see MOD’s Value, Momentum, and Stability ratings, click here.
Stock #4: Garrett Motion Inc. (GTX)
Headquartered in Rolle, Switzerland, GTX and its subsidiaries design, manufacture, and sell turbocharger and electric-boosting technologies for light and commercial vehicle original equipment manufacturers worldwide.
On June 28, GTX celebrated the expansion of its Wuhan plant in China and the production of 30 million turbochargers, reflecting its commitment to meeting the growing demand for boosting technologies in both internal combustion and electrified powertrains. This expansion in the world’s largest auto market could be beneficial for the company.
In the same month, it was announced that GTX is supporting BMW Group's development of zero-emission hydrogen fuel cell vehicles with its advanced electric Fuel Cell Compressor (FCC), with the use of GTX's new-generation modular FCC in the BMW iX5 Hydrogen. This collaboration reflects GTX's commitment to hydrogen-powered propulsion systems and clean mobility solutions.
GTX’s net sales for the second quarter ended June 30, 2023, increased 17.7% year-over-year to $1.01 billion. Its gross profit increased 19.5% year-over-year to $202 million. In addition, its adjusted EBITDA rose 23.2% from the prior-year figure to $170 million. Moreover, its adjusted free cash flow increased by 508.7% from its year-ago value to $140 million.
GTX’s revenue grew at a CAGR of 10.5% over the past three years, while its EBIT and net income grew at a CAGR of 16.2% and 19.4%, respectively.
For the fourth quarter ending December 2023, GTX’s EPS and revenue are expected to increase 11.7% and 13.7% year-over-year to $0.26 and $1.02 billion, respectively. Its revenue topped consensus estimates in three out of the four trailing quarters.
Over the past year, the stock has gained 17.8% to close the last trading session at $7.34. It has also gained 1.5% over the past three months.
GTX’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.
It is ranked #13 in the same industry. It has a B grade for Growth, Value, Stability, and Quality. Click here to see GTX’s Momentum and Sentiment ratings.
Stock #3: 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 August 16, HY declared a regular cash dividend of 32.5 cents per share, which was payable to shareholders on September 15, 2023. Its annual dividend rate of $1.30 per share yields 3.16% on prevailing prices. HY’s dividend payouts have grown at a CAGR of 1.1% over the past five years.
For the second quarter that ended June 30, 2023, HY’s revenues increased 21.8% year-over-year to $1.09 billion. Its operating profit came in at $58.80 million, compared to an operating loss of $15.70 million in the year-ago quarter.
The company’s net income attributable to stockholders came in at $38.30 million, compared to a loss of $19.40 million in the prior year quarter. Additionally, its earnings per share came in at $2.21, compared to a loss per share of $1.15 in the prior-year period.
HY’s revenue grew at a CAGR of 8.8% over the past three years. Its EBITDA grew at a CAGR of 11.6% over the past three years. Moreover, its EBIT grew at a CAGR of 18.3% over the same duration.
For the fiscal quarter ending December 2023, HY’s revenue is expected to increase 4% year-over-year to $1.02 billion, while its EPS is estimated to increase 256.8% year-over-year to $1.57. It surpassed the consensus revenue estimates in each of the trailing four quarters and consensus EPS estimates in three out of the four trailing quarters.
The stock has gained 62.5% year-to-date and 59.1% over the past year to close the last trading session at $41.13.
HY’s POWR Ratings are consistent with its positive outlook. It has an overall rating of A, which translates to a Strong Buy in our proprietary rating system.
It has an A grade for Growth and Value and a B for Momentum. It is ranked #12 in the same industry. Click here to see HY’s Stability, Sentiment, and Quality ratings.
Stock #2: Miller Industries, Inc. (MLR)
MLR produces and sells towing and recovery equipment. It provides wreckers designed for the retrieval and towing of disabled vehicles and equipment, as well as specialized car carriers equipped with hydraulic tilt mechanisms for transporting both new and disabled vehicles and equipment.
On May 31, MLR announced its acquisition of Southern Hydraulic Cylinder, Inc., a custom hydraulic cylinder manufacturer, for approximately $17.5 million in an all-cash transaction. This acquisition is expected to enhance MLR's supply chain stability and is expected to have a positive impact on its ability to deliver finished goods to customers.
For the fiscal second quarter that ended June 30, 2023, MLR’s net sales increased 49% year-over-year to $300.26 million, while its gross profit increased 117.3% from the previous year's value to $39.93 million. Additionally, the company’s net income and income per common share came in at $14.92 million and $1.29, showing a 297% and 290.9% increment, respectively.
MLR’s revenue grew at a CAGR of 13% over the past three years. Its EBITDA grew at a CAGR of 9% over the same period. Moreover, its EBIT grew at a CAGR of 8.9% over the past three years. Its total assets also captured an 18.6% CAGR over the same period.
The stock has gained 58.9% over the past year and 39.5% year-to-date, closing the last trading session at $37.20.
It’s no surprise that MLR has an overall rating of A, which equates to a Strong Buy in our proprietary rating system. It has an A grade for Growth and a B for Value. Within the same A-rated industry, it is ranked #11.
In addition to the POWR Ratings we’ve stated above, we also have MLR’s ratings for Momentum, Stability, Sentiment, and Quality. Get all MLR ratings here.
Stock #1: Gates Industrial Corporation plc (GTES)
GTES is a global manufacturer of power transmission and fluid power solutions, offering products like belts, hoses, and hydraulic components for various industries. It operates in two segments: Power Transmission and Fluid Power.
On August 1, 2023, GTES announced an expansion of its product portfolio with the introduction of the G-Force WorkHorse CVT belt for UTVs and ATVs. Tom Pitstick, chief strategic officer of GTES, said, "G-Force WorkHorse was designed to simplify our product offering for our customers. One belt that outperforms two existing products regardless of where or how the customer uses it."
GTES’ net sales increased 3.3% year-over-year to $936.30 million for the fiscal second quarter that ended July 1, 2023. Its gross profit rose 8.1% over the prior-year quarter to $352.70 million.
Its adjusted EBITDA increased 9.6% over the prior-year quarter to $197.30 million. Its adjusted net income and adjusted net income per share came in at $101.60 million and $0.36, up 12.6% and 12.5% from the previous year's figures.
GTES’ net income grew at a CAGR of 49.6% over the past three years. Its EPS grew at a CAGR of 50.6% over the same period. Moreover, its EBIT grew at a CAGR of 20% over the past three years.
For the fiscal year ending December 2023, Street expects GTES’ revenue and EPS to increase 1.2% and 5.2% year-over-year to $3.60 billion and $1.20, respectively.
GTES’ stock has gained 3.7% over the past year to close the last trading session at $11.10.
GTES’ POWR Ratings reflect its promising outlook. It has an overall rating of A, equating to a Strong Buy in our proprietary rating system.
GTES has an A grade for Value and a B for Growth, Stability, and Quality. It is ranked #4 within the Auto Parts industry. To access the additional GTES ratings for Momentum and Sentiment, click here.
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GTES shares were trading at $11.15 per share on Thursday afternoon, up $0.05 (+0.45%). Year-to-date, GTES has declined -2.28%, versus a 14.07% rise in the benchmark S&P 500 index during the same period.
About the Author: Anushka Dutta
Anushka is an analyst whose interest in understanding the impact of broader economic changes on financial markets motivated her to pursue a career in investment research.
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