Easing inflation, expected interest rate cuts next year, the transition to electric vehicles (EVs), government incentives on EVs, availability of sufficient inventory, and easing supply chains are some of the factors boosting the long-term growth prospects of the auto industry.
Amid this backdrop, it could be wise to buy fundamentally strong auto stocks: Copart, Inc. (CPRT), Lear Corporation (LEA), and Hino Motors, Ltd. (HINOY).
Before diving deeper into the fundamentals of the stocks, let’s discuss what’s shaping the auto industry's prospects.
During the pandemic, automobile sales hit a rough patch due to supply chain issues, high inflation, and other challenges. However, there has been a notable recovery in global car sales in 2023, showing a robust bounce-back from the challenges during the pandemic.
The automobile industry is benefiting from rising disposable incomes, changing consumer preferences, technological innovations, adoption of electric vehicles, expansion of public charging infrastructure, growing interest in automotive DIY, etc. U.S. new light vehicle sales in November rose 7.3% year-over-year.
Based on the revival of Chinese demand, J.D. Power and GlobalData raised the annual forecast for global light-vehicle sales to 89.3 million units, rising 10% over last year. Also, global light-vehicle sales in 2024 are forecasted to grow 3% year-over-year to 92.3 million units next year.
Additionally, automobiles nowadays feature several high-end components, such as digital instrument clusters, infotainment systems, safety systems, battery management systems (BMS) and advanced telematics. The growing demand for such vehicle components should benefit the auto parts industry. The global auto parts industry is projected to grow at a CAGR of 6.3% to reach $939.21 billion by 2028.
Let’s take a look at the fundamentals of the stocks mentioned above.
Copart, Inc. (CPRT)
CPRT provides online vehicle auctions and remarketing services globally, connecting various stakeholders, including insurers, banks, dealers, and the public. The company's services include online seller access, salvage estimation, estimating, end-of-life vehicle processing, transportation, vehicle inspection stations, on-demand reporting, title processing and procurement, loan payoff, flexible vehicle processing programs, buy it now, member network, sales process, and dealer services.
On October 10, 2023, CPRT announced a strategic investment and partnership with Purple Wave, a pioneer in online heavy equipment auctions. CPRT’s Co-CEO Jeff Liaw said, “Through our strategic investment and partnership, we will leverage our areas of expertise for the benefit of our respective marketplaces.”
“And perhaps most critically, we share a fundamental approach to business – commitment to creating long-term value for our industry participants and our shareholders through excellence and innovation,” he added.
In terms of the trailing-12-month net income margin, CPRT’s 33.14% is 446.3% higher than the 6.07% industry average. Likewise, its 39.32% trailing-12-month EBIT margin is 304.3% higher than the industry average of 9.73%. Furthermore, the stock’s 13.17% trailing-12-month Capex/Sales is 342.9% higher than the industry average of 2.97%.
For the fiscal first quarter that ended October 31, 2023, CPRT’s total service revenues and vehicle sales increased 14.2% over the year-ago quarter to $1.02 billion. Its gross profit increased 25.6% year-over-year to $464.02 million. The company’s net income and EPS came in at $332.53 million and $0.34 per common share, representing an increase of 35.3% and 36% year-over-year, respectively.
Street expects CPRT’s EPS and revenue for the quarter ending January 31, 2024, to increase 13.9% and 8.2% year-over-year to $0.35 and $1.03 billion, respectively. The company has an impressive surprise history, surpassing the consensus EPS estimates in each of the trailing four quarters. The stock has gained 61% year-to-date to close the last trading session at $49.01.
It’s no surprise that CPRT has an overall rating of B, which translates to a Buy in our POWR Ratings system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
CPRT has an A grade for Quality and a B in Stability and Sentiment. Within the Auto Dealers & Rentals industry, it is ranked #5 out of 20 stocks. In addition to the POWR Ratings we’ve stated above, we have also rated CPRT for Growth, Value, and Momentum. Get all CPRT ratings here.
Lear Corporation (LEA)
LEA designs, develops, engineers, manufactures, assembles, and supplies automotive seating, electrical distribution systems, and related components for automotive original equipment manufacturers in North America, Europe, Africa, Asia, and South America. It operates under the Seating and E-Systems segments.
On May 23, 2023, LEA announced plans to open a Connection Systems plant in Morocco, focusing on manufacturing injection molded parts and engineered plastics for automakers and LEA's E-Systems and Seating business units.
The repurposed facility in Tangier reflects LEA's commitment to global expansion, creating jobs, enhancing manufacturing capabilities in the region, and helping generate new business and increase revenues.
In terms of the trailing-12-month Return on Total Capital, LEA’s 8.04% is 33.1% higher than the 6.04% industry average. Likewise, its 12.28% trailing-12-month Return on Common Equity is 7.7% higher than the industry average of 11.40%. Furthermore, the stock’s 1.64x trailing-12-month asset turnover ratio is 65.3% higher than the industry average of 0.99x.
LEA’s net sales for the third quarter that ended September 30, 2023, increased 10.3% year-over-year to $5.78 billion. Its net income attributable to LEA grew 21.6% year-over-year to $169.60 million. The company’s adjusted EPS came in at $2.87, increasing 23.2% over the prior-year quarter.
For the quarter ending December 31, 2023, LEA’s EPS and revenue are expected to increase 11.6% and 5% year-over-year to $3.14 and $5.64 billion, respectively. It topped Street EPS estimates in each of the trailing four quarters, which is impressive. The stock has gained 8.1% year-to-date to close the last trading session at $134.07.
LEA’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.
It has a B grade for Growth and Value. It is ranked #23 out of the 62 stocks in the A-rated Auto Parts industry. Click here to see the additional ratings of LEA for Momentum, Stability, Sentiment, and Quality.
Hino Motors, Ltd. (HINOY)
Headquartered in Hino, Japan, HINOY manufactures and sells large commercial vehicles under the Hino brand worldwide. It offers trucks and buses, light commercial vehicles, passenger vehicles, various engines, service parts, etc.
In terms of the trailing-12-month CAPEX/Sales, HINOY’s 4.24% is 42.7% higher than the 2.97% industry average. Likewise, its 1.12x trailing-12-month asset turnover ratio is 40% higher than the industry average of 0.80x.
For six months that ended September 30, 2023, HINOY’s net sales increased 3% year-over-year to ¥755.39 billion ($5.17 billion). Its gross profit rose marginally over the year-ago value to ¥124.01 billion ($829.34 million). The company’s operating profit stood at ¥6.77 billion ($46.37 million) and comprehensive income amounted to ¥18.67 billion ($127.87 million).
Additionally, its total assets came in at ¥1.42 trillion ($9.73 billion), compared to ¥1.36 trillion ($9.31 billion) at the end of the fiscal year ended March 31, 2023.
Analysts expect HINOY’s revenue for the fiscal 2024 to increase 65.2% year-over-year to $10.29 billion. Over the past month, its stock has declined 8.9% to close the last trading session at $32.11.
HINOY’s strong fundamentals are reflected in its POWR Ratings. It has an overall rating of B, which translates to a Buy in our proprietary rating system.
It has a B grade for Value and Stability. It is ranked #22 out of the 51 stocks in the Auto & Vehicle Manufacturers industry. In addition to the POWR Ratings highlighted above, you can see HINOY’s ratings for Growth, Momentum, Sentiment, and Quality, here.
What To Do Next?
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CPRT shares were trading at $48.92 per share on Tuesday morning, down $0.09 (-0.18%). Year-to-date, CPRT has gained 60.68%, versus a 22.31% rise in the benchmark S&P 500 index during the same period.
About the Author: Dipanjan Banchur
Since he was in grade school, Dipanjan was interested in the stock market. This led to him obtaining a master’s degree in Finance and Accounting. Currently, as an investment analyst and financial journalist, Dipanjan has a strong interest in reading and analyzing emerging trends in financial markets.
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