Autoliv, Inc. ALV has been gaining traction, particularly on the back of product launches and capital-deployment strategies. Also, the company’s cost-saving efforts are helping generate improved earnings.
However, its shares have gained 26% in the past year compared with the industry's 28.7% growth. The underperformance resulted from the company’s weak earnings surprise history, having missed estimates in three out of the last four quarters.
Moreover, a slump in the light-vehicle markets due to softening consumer confidence, trade tariffs and regulatory changes is a headwind. Also, rising RD&E expenses, lower capacity utilization and stiff competition are concerns.
Let’s delve deeper into the factors that justify its current Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Major Growth Contributors
Autoliv regularly launches innovative products to bolster sales. The company has also received many awards for the same. Additionally, it has been ramping up its product-launch targets, in order to fuel organic growth.
Autoliv’s order intake has grown continuously, supporting its growth opportunities. Last year, it booked around 50% of the available order value in 2018, which marked the fourth consecutive year of booking around or more than 50% of available order value. Further, Autoliv is employing continued improvement activities to recover productivity and reduce costs. In sync with this, the company is working on redesigning its production line. It envisions achieving its 2020 target of more than $10 billion in sales and approximately 13% adjusted operating margin.
Autoliv actively pursues capital-deployment strategies to boost shareholder value, thus, maintaining an efficient capital structure. In May 2018, Autoliv hiked the quarterly dividend payout from 60 cents to 62 cents per share. Further, it announced the same dividend payout to shareholders in the subsequent quarters. It also announced a dividend of 62 cents in the third quarter of 2019, which was paid on Sep 5, 2019, to shareholders of record as of Aug 21, 2019.
Over the past year, shares of Autoliv have underperformed the industry it belongs to. For 2019, Autoliv witnessed a slump in the light-vehicle markets due to softening consumer confidence, trade tariffs and regulatory changes.
The company’s gross margin is under strain primarily due to raw-material headwinds from Steel and Nylon, and launch-related costs, along with currency volatility. Further, RD&E expenses, and lower capacity utilization of supply-chain production and logistic systems are other headwinds. In the coming quarters, product introductions are expected to keep costs at high levels.
Though Autoliv occupies a leading position in the market, it faces stiff competition in passive safety products from TRW Automotive Holdings Corp., which was acquired by the German group, ZF Friedrichafen. The combined company is the third largest automotive supplier, globally. Moreover, the market for active safety products is fragmented, resulting in many competitors.
Stocks to Consider
Some better-ranked stocks in the Auto-Tires-Trucks sector include Douglas Dynamics, Inc. PLOW, Tesla, Inc. TSLA and SPX Corporation SPXC. While Douglas Dynamics flaunts a Zacks Rank #1 (Strong Buy), Tesla and SPX carry a Zacks Rank of 2 (Buy), at present.
Douglas Dynamics has an estimated earnings growth rate of 10.42% for 2020. The company’s shares have surged 61.1% in a year’s time.
Tesla has a projected earnings growth rate of 1,246% for the ongoing year. Its shares have gained 35.4% over the past year.
SPX has an expected earnings growth rate of 8.09% for the current year. The stock has appreciated 89% in the past year.
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