In August, the Blackstone Group (BX) announced plans to sell its remaining 9% stake in TRW Automotive Holdings (TRW), manufacturer of auto safety devices used by the major carmakers. Far from a vote of lack of confidence, Blackstone was just cashing in on the last of a very profitable private equity play that began in 2002 when Northrop Grumman (NOC) acquired TRW and sold off TRW’s automotive supply unit for $4.7 billion. In 2004 Blackstone took TRW public and retained a near 57% share.
NYSE:TRW data by YCharts
While Blackstone is cashing out, TRW remains an interesting way to invest in the global pickup in auto demand. Despite a 60% rise in the stock price over the past year, TRW still has a trailing 12-month PE ratio below 10. At the end of the second quarter TRW Automotive remained the largest holding in the $3.9 billion Oakmark Select mutual fund, at nearly 8% of assets. Half of that position was built in the fourth quarter of 2011 when the stock was selling below $35, but in the second quarter of this year the value focused managers added another 100,000 shares at a reported price of $66, suggesting they still see a compelling discount to intrinsic value.
TRW Automotive reported a 6% revenue increase in the second quarter. Given that more than 40% of the firm’s sales come out of Europe that’s pretty impressive growth. Moreover, green shoots seem to be breaking through in the Eurozone, where the recession has officially ended. While still very early in the recovery cycle, recent data shows potential consumer demand for new cars at its highest level since the financial crisis.
To be clear, while that’s a trend line moving in the right direction, it still could be a dead cat bounce off what has been a painful and protracted lack of demand. No one is calling for a quick rebound in European auto sales in 2014.
TRW’s revenue growth is coming from North America and China. North America accounted for about a third of TRW’s revenue last year and is riding the strong pickup in U.S. auto sales.
Asia represented 17 percent of sales last year. China sales grew 32% in 2012 and rose to 13% of total sales for the company. Amid the economic slow down in China TRW still expects 2013 sales to rise 15% in China.
Carla Fried, a senior contributing editor at ycharts.com, has covered investing for more than 25 years. Her work appears in The New York Times, Bloomberg.com and Money Magazine. She can be reached at firstname.lastname@example.org. Read the RIABiz profile of YCharts. You can also request a demonstration of YCharts Platinum.
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