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Should You Dump Autoliv (ALV) from Your Portfolio?

Zacks Equity Research

On Mar 14, we issued an updated research report on Autoliv, Inc. ALV. Negative currency translation and stiff competition in the passive safety product market,  remain concerns for this worldwide leader in automotive safety products.

Autoliv reported adjusted earnings of $1.71 per share in the fourth quarter of 2016 that missed the Zacks Consensus Estimate of $1.83. Also, earnings decreased 17.8% from $2.08 reported a year ago.

Autoliv reported record consolidated revenues of $2.6 billion, up 3.3% year over year but missed the Zacks Consensus Estimate of $2.69 billion. Excluding negative currency translation effects and the impact of acquisitions, organic sales improved 1.1%.

Negative currency translation effects has been adversely affecting the company’s earnings and revenues for several quarters and remains a major headwind for Autoliv.

Though Autoliv occupies a leading position in the market, it faces stiff competition in the passive safety products market from the likes of Takata Corporation and TRW Automotive Holdings Corp., which were acquired by German group ZF Friedrichafen.

Autoliv also faces significant risks due to customer concentration. The top five customers represent about 48% while the top 10 account for 79% of Autoliv’s sales. Thus, the loss of any key customer could considerably affect the company’s earnings.

Price Performance & Valuation

Autoliv has underperformed the Zacks categorized Auto/Truck-Original Equipment industry in the last three months. The company lost 5.2% over this period, while the industry saw a 8.4% increase.

The company’s stretched valuation is a concern. In case of Autoliv, the trailing twelve months price earnings (P/E) ratio is 15.5 whereas the Zacks categorized Auto/Truck-Original Equipment sub industry trailing twelve months P/E ratio is lower at 13.34. This implies that the stock is overvalued and hence, we caution the investors against entering the stock at this point.

Zacks Rank & Key Picks

Autoliv currently carries a Zacks Rank #4 (Sell).

Better-ranked companies in the auto space include American Axle & Manufacturing Holdings, Inc. AXL, Lear Corp. LEA and Honda Motor Co., Ltd HMC. Both American Axle and Lear sport a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Honda carries a Zacks Rank #2 (Buy).

For the current year, American Axle, Lear and Honda expect earnings growth of around 8.1%, 8.9% and 26%, respectively.

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Honda Motor Company, Ltd. (HMC): Free Stock Analysis Report
American Axle & Manufacturing Holdings, Inc. (AXL): Free Stock Analysis Report
Autoliv, Inc. (ALV): Free Stock Analysis Report
Lear Corporation (LEA): Free Stock Analysis Report
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