Robust customer demand, the swift adoption of electric vehicles (EVs), technological advancements, government incentives, and enhanced global supply chains are all boosting the auto industry’s prospects. Moreover, the expected interest rate cuts this year will likely propel the industry’s growth.
Given the favorable industry trends, it may be wise to consider investing in quality auto stocks REV Group, Inc. (REVG), Mazda Motor Corporation (MZDAY), and Isuzu Motors Limited (ISUZY) for solid gains.
Before delving deeper into their fundamentals, let’s discuss what’s happening in the auto industry.
Despite challenges like persistent inflation and increased car repair and insurance expenses, the automobile sector witnessed growth last year. New vehicle sales in the U.S. surged to 1.26 million units in February, marking a 9.6% increase from February 2022. Additionally, global light vehicle sales are projected to reach 89.1 million units this year, reflecting a 3% rise from the previous year.
Meanwhile, manufacturer promotions, increasing disposable incomes, anticipated interest rate cuts, and technological advancements in the sector will further benefit the industry. The global automotive industry is projected to grow at a 6.8% CAGR, reaching $6.86 trillion by 2033.
Furthermore, the industry is set for continued growth due to the rising adoption of EVs. Increasing numbers of people choose electric cars because of environmental concerns, expanding public charging infrastructure, price reductions, and government subsidies. BloombergNEF predicts a 21% rise in global passenger EV sales, reaching 16.7 million units in 2024.
Considering these conducive trends, let’s analyze the fundamentals of the three Auto & Vehicle Manufacturers picks, beginning with the third choice.
Stock #3: REV Group, Inc. (REVG)
REVG and its subsidiaries design, manufacture, and distribute specialty vehicles and related aftermarket parts and services internationally. They operate in three segments: Fire & Emergency, Commercial, and Recreation.
On January 4, 2024, Mesa unveiled its all-electric fire truck, manufactured by REVG subsidiary E-ONE. This truck reduces firefighters' exposure to toxins and supports Mesa's Climate Action Plan for carbon neutrality by 2050.
In terms of the trailing-12-month levered FCF margin, REVG’s 10.83% is 66.1% higher than the 6.52% industry average. Likewise, its 9.15% trailing-12-month net income margin is 54.3% higher than the 5.93% industry average. Likewise, its 51.56% trailing-12-month Return on Common Equity is 329.1% higher than the 12.02% industry average.
REVG’s net sales for the fiscal first quarter ended January 31, 2024, increased marginally year-over-year to $586 million. Its gross profit increased 8.6% year-over-year to $62.90 million.
For the same quarter, its adjusted net income and adjusted net income per common share stood at $14.70 million and $0.25, up 113% and 108.3% from the year-ago quarter, respectively. Moreover, its adjusted EBITDA increased 43.2% year-over-year to $30.50 million.
Analysts expect REVG’s EPS for the quarter ending July 31, 2024, to increase 14.3% year-over-year to $0.40. Its revenue for fiscal 2025 is expected to increase 4.6% year-over-year to $2.61 billion. It surpassed the consensus EPS estimates in three of the trailing four quarters. Over the past year, the stock has gained 111.5% to close the last trading session at $20.63.
REVG’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 #8 out of 53 stocks in the Auto & Vehicle Manufacturers industry. It has a B grade for Value and Quality. To see REVG’s Growth, Momentum, Stability, and Sentiment ratings, click here.
Stock #2: Mazda Motor Corporation (MZDAY)
Headquartered in Hiroshima, Japan, MZDAY manufactures and sells passenger cars and commercial vehicles in Japan, China, North America, Europe, and internationally.
On January 31, 2024, MZDAY announced the launch of the Mazda CX-70, its latest crossover SUV for North America, with hybrid powertrains and advanced safety tech, to debut in spring in the U.S. and Canada. This move marks MZDAY's entry into the mid-size SUV segment, bolstering its lineup and business in North America.
MZDAY’s 6.75% trailing-12-month Return on Total Capital is 10.2% higher than the 6.12% industry average. Likewise, its 5.82% trailing-12-month Return on Total Assets is 37.9% higher than the 4.22% industry average. Furthermore, the stock’s 1.40x trailing-12-month asset turnover ratio is 40.8% higher than the 1x industry average.
For the third quarter that ended December 31, 2023, MZDAY’s net sales increased 32.3% year-over-year to ¥3.57 trillion ($23.57 billion). Its operating income rose 82.9% over the prior-year quarter to ¥200.20 billion ($1.32 billion). The company’s net income attributable to owners of the parent and net income per share stood at ¥165.49 billion ($1.09 billion) and ¥262.45, respectively, up 59.8% each year-over-year.
For the quarter ending March 31, 2024, MZDAY’s revenue is expected to increase 4.7% year-over-year to $8.72 billion. Over the past year, the stock has gained 33.9% to close the last trading session at $5.84.
MZDAY’s solid prospects are reflected in its POWR Ratings. It has an overall rating of A, which translates to a Strong Buy in our proprietary rating system.
It has an A grade for Value and a B for Growth, Stability, and Quality. Within the same industry, it is ranked #4. In addition to the grades mentioned above, we have also rated MZDAY for Momentum and Sentiment. Get all ratings here.
Stock #1: Isuzu Motors Limited (ISUZY)
ISUZY manufactures and sells commercial vehicles, light commercial vehicles, and diesel engines and components worldwide. Its products include heavy-duty and medium-duty trucks, buses, light-duty trucks, passenger pickup vehicles, pickup trucks, SUVs, and marine and industrial engines.
On March 19, 2024, ISUZY announced its first D-MAX BEV pickup truck, launching initially in Europe in 2025 and subsequently in Australia, Thailand, and other global markets, featuring a full-time 4WD system with e-Axles, high towing capacity, and a commitment to carbon-neutral vehicles, aiming to enrich lives and meet diverse commercial and passenger vehicle needs.
On March 6, 2024, ISUZY and TIER IV formed a capital and business alliance to develop Level 4 autonomous driving systems for route buses, with ISUZY investing ¥6 billion ($39.62 million) in TIER IV.
The partnership aims to accelerate the development and deployment of autonomous driving technology for route buses, leveraging TIER IV's expertise in open-source autonomous driving software and ISUZY’s experience in the route bus sector.
In terms of the trailing-12-month EBIT margin, ISUZY’s 9.11% is 19.5% higher than the 7.63% industry average. Likewise, its 12.59% trailing-12-month EBITDA margin is 14.6% higher than the industry average of 10.99%. Furthermore, the stock’s 3.28% trailing-12-month Capex/Sales is 7.7% higher than the industry average of 3.05%.
ISUZY’s net sales for the third quarter, which ended on December 31, 2023, increased 8.4% year-over-year to ¥2.54 trillion ($16.77 billion). Its operating income rose 28.1% over the prior-year quarter to ¥253.56 billion ($1.67 billion).
Additionally, the company's net income attributable to owners of the parent increased 26.7% year-over-year to ¥159.42 billion ($1.05 billion). Its net income per share came in at ¥206.31, representing a 27.1% year-over-year increase.
Street expects ISUZY’s revenue for the quarter ending September 30, 2024, to increase 3.6% year-over-year to $5.90 billion. Over the past nine months, the stock has gained 16.6% to close the last trading session at $13.80.
ISUZY’s POWR Ratings reflect its positive outlook. It has an overall rating of A, equating to a Strong Buy in our proprietary rating system.
Within the Auto & Vehicle Manufacturers industry, it is ranked #2 out of 53 stocks. It has an A grade for Value and a B for Stability, Sentiment, and Quality. Click here to see ISUZY’s Growth and Momentum ratings.
What To Do Next?
43 year investment veteran, Steve Reitmeister, has just released his 2024 market outlook along with trading plan and top 11 picks for the year ahead.
ISUZY shares were trading at $13.85 per share on Thursday morning, up $0.05 (+0.36%). Year-to-date, ISUZY has gained 12.15%, versus a 10.46% rise in the benchmark S&P 500 index during the same period.
About the Author: Abhishek Bhuyan
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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