The robust demand for new vehicles, propelled by rising sales of electric vehicles (EVs), has led to significant growth in the auto industry. As the industry seems to be in a bright spot, investors could add fundamentally robust auto stocks DENSO Corporation (DNZOY), REV Group, Inc. (REVG), and Miller Industries, Inc. (MLR) to their portfolio to garner significant returns.
Despite significant challenges like elevated interest rates, geopolitical uncertainties, and supply chain issues, the auto industry showcased immense resilience. In January, new vehicle sales in the U.S. were 1,082,620 units, up 2.2% year-over-year.
According to Cox Automotive, U.S. consumers bought 1.19 million all-EVs last year, up 46% year-over-year. EVs had a 7.6% share of overall car and light truck sales, up 5.9% year-over-year. Moreover, EV sales in the U.S. are expected to grow by 16% year-over-year in 2024.
The automotive sector is leveraging emergent technologies such as Artificial Intelligence, blockchain, data analytics, and the Internet of Things (IoT) to enhance automobile design, performance, and efficiency. The global automotive market is expected to grow to $28.70 billion by 2030 at a CAGR of 4.5%.
However, amid supply restrictions and soaring prices, a discernible trend shows that most Americans are retaining ownership of their current vehicles. This increased vehicular longevity presents potential opportunities for suppliers of aftermarket auto parts. According to Technavio, the automotive parts aftermarket market in the U.S. is projected to grow by $30.83 billion by 2027, growing at a CAGR of 7.7%.
With these favorable trends in mind, let's delve into the fundamentals of the three auto stock picks.
DENSO Corporation (DNZOY)
Headquartered in Kariya, Japan, DNZOY manufactures and sells automotive parts in Japan, the rest of Asia, North America, Europe, and internationally. It operates through powertrain system; electrification system; electronic system; thermal system; mobility system; industrial equipment; and life-related equipment segments.
On February 2, DNZOY announced the repurchase of 42.13 million shares of ¥95.93 billion ($637.23 million) from its common stock.
It pays an annual dividend of $0.34 per share, which translates to a dividend yield of 1.84% on the current share price. Its four-year average yield is 2.44%. DNZOY’s dividend payments have grown marginally over the past three years.
DNZOY’s trailing-12-month CAPEX/Sales of 5.42% is 79.8% higher than the industry average of 3.01%, while its trailing-12-month EBITDA margin of 10.79% is marginally higher than the industry average of 10.78%.
For the nine months that ended December 31, 2023, DNZOY’s revenue and gross profit increased 15.5% and 26.8% from the prior-year period to ¥5.35 trillion ($35.57 billion) and ¥800.61 billion ($5.32 billion), respectively.
For the same period, its operating profit stood at ¥238.58 billion ($1.58 billion). Its profit for the period attributable to owners of the parent company and earnings per share stood at ¥175.62 billion ($1.17 billion) and ¥58.64, respectively.
Street expects DNZOY’s revenue for the fiscal year ending March 2024 to increase 98% year-over-year to $47.63 billion. The company surpassed consensus revenue estimates in each of the trailing four quarters, which is impressive.
The stock has gained 22.8% year-to-date to close the last trading session at $18.34. Over the past year, it has gained 35.5%.
DNZOY’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 Stability and a B for Growth and Quality. It is ranked #13 within the A-rated 62-stock Auto Parts industry.
Click here for the additional POWR Ratings for DNZOY (Value, Momentum, and Sentiment).
REV Group, Inc. (REVG)
REVG designs, manufactures, and distributes specialty vehicles and related aftermarket parts and services. It operates through three segments: Fire & Emergency; Commercial; and Recreation.
On February 16, REVG paid a special cash dividend of $3 per share of common stock. It pays an annual dividend of $0.20 per share, which translates to a dividend yield of 1% on the current share price.
Its four-year average yield is 1.92%. REVG’s dividend payments have grown at a 26% CAGR over the past three years.
On February 15, REVG priced its previously announced underwritten public offering, which was upsized to 16 million shares of common stock by certain selling stockholders at the public offering price of $16.50 per share.
In connection with the offering, the selling stockholders granted the underwriters an option to purchase up to 2.40 million additional shares of common stock from the selling stockholders.
REVG’s trailing-12-month asset turnover ratio of 1.92x is 139.9% higher than the industry average of 0.80x, while its trailing-12-month ROTC of 8.90% is 29.6% higher than the industry average of 6.87%.
For the fiscal fourth quarter that ended October 31, 2023, REVG’s net sales and gross profit stood at $693.30 million and $95.50 million, up 11.2% and 43% from the prior-year quarter, respectively. Moreover, its adjusted EBITDA increased 61.2% year-over-year to $54 million.
For the same quarter, its adjusted net income and adjusted net income per common share stood at $31.70 million and $0.53, up 95.7% and 89.3% from the year-ago quarter, respectively.
Street expects REVG’s EPS for the fiscal second quarter ending April 2024 to increase 20% year-over-year to $0.42. Its revenue is expected to be $677.10 million for the same quarter. The company surpassed consensus revenue and EPS estimates in each of the trailing four quarters.
The stock has gained 117.6% over the past nine months to close the last trading session at $19.97. Over the past year, it has gained 92.6%.
REVG’s solid fundamentals are reflected in its POWR Ratings. The stock has an overall rating of A, translating to a Strong Buy in our proprietary rating system.
REVG has a B grade for Growth, Value, Sentiment, and Quality. Within the 52-stock Auto & Vehicle Manufacturers industry, it is ranked #2.
Beyond what we’ve stated above, we have also rated the stock for Momentum and Stability. Get all ratings of REVG here.
Miller Industries, Inc. (MLR)
MLR manufactures and sells towing and recovery equipment. The company manufactures the bodies of wreckers and car carriers, which are installed on truck chassis manufactured by third parties.
On December 11, 2023, MLR paid shareholders a quarterly cash dividend of $0.18 per share. This marked the 52nd consecutive quarter of the company’s dividend payment. It pays an annual dividend of $0.72 per share, which translates to a dividend yield of 1.65% on the current share price. Its four-year average yield is 2.26%.
MLR’s trailing-12-month asset turnover ratio of 2.03x is 154.9% higher than the industry average of 0.80x. Its trailing-12-month ROCE, ROTC, and ROTA of 16.39%, 11.84%, and 8.66% are 36.9%, 72.4%, and 81.1% higher than the industry averages of 11.97%, 6.87%, and 4.78%, respectively.
For the fiscal third quarter that ended September 30, 2023, MLR’s net sales and gross profit stood at $274.57 million and $42.87 million, up 33.6% and 84.9% from the prior-year quarter, respectively. Moreover, its income before income taxes increased 224% year-over-year to $22.03 million.
For the same quarter, its net income and income per common share stood at $17.46 million and $1.52, up 233.7% and 230.4% from the year-ago quarter, respectively.
The stock has gained 55.7% over the past year to close the last trading session at $43.57. Over the past nine months, it has gained 25.2%.
MLR’s POWR Ratings reflect its positive prospects. The stock has an overall B rating, equating to Buy in our proprietary rating system.
MLR has an A grade for Growth and a B for Value and Sentiment. Within the Auto Parts industry, it is ranked #10.
To see additional POWR Ratings for Momentum, Stability, and Quality for MLR, click here.
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DNZOY shares were unchanged in premarket trading Monday. Year-to-date, DNZOY has gained 22.77%, versus a 6.85% 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.
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