The auto industry has been growing due to robust customer demand, rapid electric vehicle (EV) adoption and the growing interest around them, government incentives, and eased global supply chains. Moreover, the anticipated interest rate cuts by central banks around the world are expected to bolster the industry's expansion further.

Amid this backdrop, it could be wise to add fundamentally strong auto stocks, Hino Motors, Ltd. (HINOY), Renault SA (RNLSY), and Blue Bird Corporation (BLBD) to one’s watchlist.

Before delving deeper into their fundamentals, let’s discuss what’s shaping the auto industry’s prospects.

Last year, the auto industry rebounded strongly despite high inflation and rising interest rates, with manufacturers ramping up production to meet demand and benefiting from eased supply chains. This year, despite challenges such as higher vehicle prices, the industry is set for growth driven by manufacturer promotions, increasing electric vehicle adoption, rising disposable incomes, and technological advancements.

The industry is expected to benefit from interest rate cuts this year as it will make borrowing cheaper. Global automotive sales are projected to grow from 91 million units last year to 96 million units this year, growing at a rate between 5% and 7% year-over-year.

Electric vehicles are becoming more popular, boosting the auto industry. With concerns about the environment, availability of charging stations, lower prices, and government support, electric cars are in high demand. According to BloombergNEF's electric vehicle outlook, there will be 730 million passenger EVs on the road in 2040, reaching 44% of global passenger vehicle sales by 2030.

Meanwhile, U.S. new vehicle sales are expected to rise by 1% to 15.7 million units this year, facing potential demand pressures from high interest rates despite improved vehicle supply. The share of electric vehicles in total new vehicle sales is expected to increase to 8% in 2024, up from 6.9% in November 2023.

Considering these conducive trends, let’s analyze the fundamental aspects of the three Auto & Vehicle Manufacturers picks, beginning with the third choice.

Stock #3: 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, and passenger vehicles, as well as various engines, service parts, etc.

In terms of forward EV/Sales, HINOY’s 0.39x is 78.5% lower than the 1.79x industry average. Its 11.13x forward EV/EBITDA is 5.9% lower than the 11.83x industry average. Likewise, its 0.18x forward Price/Sales is 87.5% lower than the 1.43x industry average.

For the third quarter that ended December 31, 2023, HINOY’s net sales increased 2.8% year-over-year to ¥1.14 trillion ($7.69 billion). Its operating income came in at ¥4.67 billion ($31.45 million). The company’s ordinary income stood at ¥4.06 billion ($27.37 million).

Additionally, its total assets came in at ¥1.40 trillion ($9.46 billion), compared to ¥1.36 trillion ($9.17 billion) at the end of the fiscal year ended March 31, 2023.

Street expects HINOY’s revenue for the quarter ending September 30, 2024, to increase 17.3% year-over-year to $3.01 billion. Its EPS for fiscal 2024 is expected to increase 65.7% year-over-year to $10.32 billion. Over the past month, the stock has gained 3.6% to close the last trading session at $33.25.

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. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.

It is ranked #22 out of 51 stocks in the Auto & Vehicle Manufacturers industry. It has a B grade for Value and Stability. To see HINOY’s Growth, Momentum, Sentiment, and Quality ratings, click here.

Stock #2: Renault SA (RNLSY)

Based in Boulogne-Billancourt, France, RNLSY engages in the design, manufacture, sale, repair, maintenance, and leasing of motor vehicles. It also participates in the design and production of parts and equipment used for manufacturing and operating vehicles. The company operates through Automotive, Sale Financing, and Mobility Services segments.

In terms of forward EV/EBITDA, RNLSY’s 7.52x is 23.6% lower than the 9.83x industry average. Its 1.04x forward EV/Sales is 13.9% lower than the 1.21x industry average. Likewise, its 0.18x forward Price/Sales is 80.3% lower than the 0.91x industry average.

RNLSY’s group revenues for the six months ended June 29, 2023, increased 27.3% year-over-year to €26.85 billion ($29 billion). Its operating income increased 127.1% year-over-year to €2.10 billion ($2.26 billion). The company’s net income and group share came in at €2.09 billion ($2.25 billion), compared to a net loss of €1.37 billion ($1.48 billion) in the year-ago period.

Moreover, its free cash flow increased 85.7% year-over-year to €1.78 billion ($1.92 billion). Also, its income per share came in at €7.70.

Street expects RNLSY’s revenue for the quarter ended December 31, 2023, to increase 3.2% year-over-year to $17.07 billion. Its EPS for fiscal 2023 is expected to increase 16.3% year-over-year to $57.58 billion. Over the past three months, the stock has gained 6.2% to close the last trading session at $7.62.

RNLSY’s solid prospects 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 an A grade for Growth and Value and a B for Stability. Within the same industry, it is ranked #20. Beyond the grades mentioned, we have also rated RNLSY for Momentum, Sentiment, and Quality. Get all ratings here.

Stock #1: Blue Bird Corporation (BLBD)

BLBD designs, engineers, manufactures, and sells school buses and related parts in the United States, Canada, and internationally. It operates through two segments: Bus and Parts.

On January 16, 2024, BLBD announced its reception of the largest single order of electric school buses from the Los Angeles Unified School District, totaling 180 buses, aiding the district's shift to zero-emission student transportation, with delivery anticipated starting October 2024.

In terms of forward non-GAAP P/E, BLBD’s 16.19x is 13.8% lower than the 18.79x industry average. Its 0.86x forward EV/Sales is 52.1% lower than the 1.79x industry average. Likewise, its 11.37x forward EV/EBIT is 31.4% lower than the 16.56x industry average.

BLBD’s net sales for the fiscal fourth quarter ended September 30, 2023, increased 17.6% year-over-year to $302.96 million. Its non-GAAP net income and EPS came in at $21.35 million and $0.66, respectively, compared to a non-GAAP net loss and loss per share of $21.38 million and $0.66.

For the quarter ended December 31, 2023, BLBD’s revenue is expected to increase 16.7% year-over-year to $275.13 million. Its EPS for the quarter ending March 31, 2024, is expected to increase 100.3% year-over-year to $0.54. It surpassed the Street EPS estimates in each of the trailing four quarters. Over the past year, the stock has gained 98% to close the last trading session at $30.91.

BLBD’s POWR Ratings reflect its positive outlook. It has an overall rating of B, equating to a Buy in our proprietary rating system.

Within the Auto & Vehicle Manufacturers industry, it is ranked #18. It has an A grade for Quality and a B for Growth. Click here to see BLBD’s Value, Momentum, Stability, and Sentiment ratings.

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RNLSY shares were trading at $7.67 per share on Monday afternoon, up $0.05 (+0.64%). Year-to-date, RNLSY has declined -5.43%, versus a 3.71% rise in the benchmark S&P 500 index during the same period.

Abhishek embarked on his professional journey as a financial journalist due to his keen interest in discerning the fundamental factors that influence the future performance of financial instruments.

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