Introduction of autonomous vehicles and increasing demand for high-end passenger vehicles and electric vehicles are expected to drive growth in the auto industry. However, fluctuating raw material prices continue to impact the industry. Therefore, while I think quality auto stock Subaru Corporation (FUJHY) might be a solid buy now, Harley-Davidson, Inc. (HOG) might be best kept on hold, and Workhorse Group Inc. (WKHS) might be best avoided, given its weak fundamentals.
The growth of the automotive market is influenced by various factors such as the adoption of electric vehicles, the development and manufacturing of long-range batteries along with the installation of fast and ultra-fast charging points, the introduction of autonomous vehicles, deployment of 5G connectivity and trends related to used cars.
The global automotive market is expected to grow at a CAGR of 3% until 2031.
Additionally, the global automotive artificial intelligence market is growing with the increasing R&D development in the automobile industry. The adoption of AI in self-driving cars with the usage of advanced ultrasonic, radar & Lidar sensors, machine learning systems, and video cameras is bringing a revolution in the automotive industry and propelling the growth of the automotive artificial intelligence market.
The global automotive artificial intelligence (AI) market is projected to reach $35.71 billion by 2033, registering a CAGR of 28% until 2033.
However, the market faces various challenges, such as fluctuating raw material prices and the need to comply with various international standards and regulations. Also, the mutualization of premium cars or vehicles which are equipped with the advanced technologies is extremely difficult at times due to which the market growth might be hampered in the coming years.
Considering these trends, let’s take a look at the fundamentals of the three Auto & Vehicle Manufacturers stocks mentioned above.
Stock to Buy:
Subaru Corporation (FUJHY)
Based in Tokyo, Japan, FUJHY manufactures and sells automobiles and aerospace products in Japan, rest of Asia, North America, Europe, and internationally. It operates through three segments: Automotive, Aerospace, and Others.
On January 15, 2024, FUJHY announced that it had expanded its Subaru Loves to Help initiative through a new partnership with Operation Warm, a national nonprofit that provides brand-new, high-quality coats and shoes for children in urgent need.
FUJHY’s trailing-12-month ROCE of 12.56% is 7.9% higher than the industry average of 11.64%. Its trailing-12-month net income margin of 6.46% is 38.3% higher than the industry average of 4.67%.
FUJHY’s revenues for the six months that ended September 30, 2023, increased 26.4% year-over-year to ¥2.21 trillion ($14.93 billion). Its operating profit increased 68.3% year-over-year to ¥185.84 billion ($1.26 billion). In addition, its profit for the period attributable to owners of parent and EPS increased 93.9% and 95.6% year-over-year to ¥150.95 billion ($1.02 billion) and ¥198.58, respectively.
Street expects FUJHY’s revenue to increase 1.50% year-over-year to $8.16 billion for the fiscal quarter ending December 31, 2023. Also, the company topped the consensus revenue estimates in three of the four trailing quarters, which is impressive.
The stock gained 29.7% over the past nine months to close the last trading session at $10.49.
FUJHY’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 an A grade in Value and a B in Quality and Stability. It is ranked #7 out of 53 stocks in the Auto & Vehicle Manufacturers industry.
Click here to see the other ratings of FUJHY (Momentum, Sentiment, and Growth).
Stock to Hold:
Harley-Davidson, Inc. (HOG)
HOG manufactures and sells motorcycles in the United States and internationally. The company operates in three segments: Harley-Davidson Motor Company, LiveWire, and Harley-Davidson Financial Services.
In terms of the trailing-12-month gross profit margin, HOG’s 31.44% is 12% lower than the 35.74% industry average. However, its 12.20% trailing-12-month net income margin is 161.2% higher than the 4.67% industry average.
HOG’s revenue for the third quarter ended September 30, 2023, declined 6% year-over-year to $1.55 billion. Its operating income decreased 38.2% over the prior-year quarter to $209.29 million. The company’s net income attributable to HOG declined 23.9% year-over-year to $198.65 million. However, its current assets increased 8.2% year-over-year to $5.42 billion. Additionally, its net cash provided by operating activities for nine months ended September 30, 2023, increased 23% year-over-year to $706.77 million.
Analysts expect HOG’s revenue for the fourth quarter (ended December 31, 2023) to decline 4.8% year-over-year to $875.05 million. Its EPS for the same quarter is expected to decline 88.5% year-over-year to $0.03. However, it topped the consensus EPS estimates in three of the four trailing quarters.
Over the past three months, the stock has gained 25.6% to close the last trading session at $34.54.
The stock has an overall C rating, equating to a Neutral in our proprietary rating system.
It has a C grade for Value. It is ranked #34 in the same industry.
For HOG’s additional ratings for Growth, Stability, Sentiment, Momentum, and Quality, click here.
Stock to Sell:
Workhorse Group Inc. (WKHS)
WKHS is a technology company that engages in design, manufacture, and sale of zero-emission commercial vehicles in the United States. The company offers electric and range-extended medium-duty delivery trucks under the Workhorse brand; and HorseFly Unmanned Aerial System, as well as designs and manufactures drone systems.
WKHS’s trailing-12-month gross profit margin of negative 242.2% is lower than the industry average of 35.74%. Its asset turnover ratio of 0.07x is 92.9% lower than the industry average of 0.98x.
During the fiscal third quarter ended September 30, 2023, WKHS’s gross loss came in at $3.53 million. Also, loss from operations came in at $21.06 million, and net loss came in at $30.65 million. Its net loss per share stood at $0.14.
WKHS’s EPS is expected to be negative $0.08 in the fiscal fourth quarter ended December 2023. Also, it has failed to surpasses revenue estimates in each of the trailing four quarters.
The stock has plunged 77.4% over the past nine months to close the last trading session at $0.24.
WKHS’s grim prospects are reflected in its POWR Ratings. The stock has an overall F rating, which translates to a Strong Sell in our POWR Ratings system.
WKHS also has a D grade for Value and a F in Stability and Quality. It is ranked #44 in the same industry.
Beyond what is stated above, we’ve also rated WKHS for Growth, Sentiment, and Momentum. Get all WKHS ratings here.
What To Do Next?
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FUJHY shares were trading at $10.75 per share on Thursday afternoon, up $0.26 (+2.48%). Year-to-date, FUJHY has gained 18.55%, versus a 4.74% rise in the benchmark S&P 500 index during the same period.
About the Author: Nidhi Agarwal
Nidhi is passionate about the capital market and wealth management, which led her to pursue a career as an investment analyst. She holds a bachelor's degree in finance and marketing and is pursuing the CFA program. Her fundamental approach to analyzing stocks helps investors identify the best investment opportunities.
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