Despite macroeconomic concerns, auto sales are likely to increase due to pent-up demand. Given the industry’s growth prospects, investors could consider buying fundamentally sound auto stocks Ferrari N.V. (RACE), Autoliv, Inc. (ALV) and Wabash National Corporation (WNC) for solid returns.
Before diving deeper into their fundamentals, let’s discuss what’s happening in the auto industry.
In October, new vehicle sales in the United States hit 1,211,141 units, up 2% year on year, thanks to surging demand for electric vehicles (EVs) and the country's economic recovery.
AI is revolutionizing the automotive industry by improving safety, efficiency, and the driving experience. Generative AI promotes innovation by allowing designers to create more aerodynamic, fuel-efficient vehicles, optimize manufacturing processes, and improve driving assistance features such as autonomous driving, all of which lead to increased productivity and cost savings.
Also, the global auto parts market is estimated to grow at a CAGR of 6.8% until 2030. Factors such as technical innovation, digitization of automobile repair and maintenance services, and demand for aftermarket services drive market growth.
In addition, the automotive industry is expected to increase at a 6.9% CAGR until 2030, reaching $6.07 trillion. Rising demand for high-end passenger cars, urbanization, and rising economic infrastructure spending are boosting the automotive sector.
Considering these conducive trends, let’s look at the fundamentals of the three Auto stocks.
Ferrari N.V. (RACE)
Headquartered in Maranello, Italy, RACE designs, engineers, manufactures, and sells luxury performance sports cars worldwide. It also provides spare parts, engines, after-sale services, repair, maintenance, and restoration services for cars and licenses its Ferrari brand to various producers and retailers of luxury and lifestyle goods.
RACE’s trailing-12-month net income margin of 20.27% is 361.1% higher than the 4.40% industry average. Its trailing-12-month ROCE of 45.01% is 309.4% higher than the 10.99% industry average.
For the fiscal third quarter that ended September 30, 2023, RACE’s net revenues increased 23.5% year-over-year to €1.54 billion ($1.68 billion), while its adjusted EBIT grew 41.5% from the year-ago quarter to €423 million ($459.96 million).
Also, the company’s adjusted net income and adjusted EPS stood at €332 million ($361 million) and €1.82, up 45.6% and 48% year-over-year, respectively.
Street expects RACE’s revenue to increase 14.5% year-over-year to $6.36 billion for the year ending December 2023. Its EPS is expected to grow 29.5% year-over-year to $7.20 for the same period. It has surpassed EPS estimates in all four trailing quarters. Over the past year, the stock has gained 68.3% to close the last trading session at $359.34.
RACE’s POWR Ratings reflect this promising outlook. The stock has an overall rating of B, equating to a Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
RACE also has an A grade for Sentiment and Quality and a B for Growth and Stability. It is ranked #16 out of 52 stocks in the B-rated Auto & Vehicle Manufacturers industry. Click here to see the additional POWR Ratings for Value and Momentum for RACE.
Autoliv, Inc. (ALV)
Headquartered in Stockholm, Sweden, ALV through its subsidiaries, develops, manufactures, and supplies passive safety systems to the automotive industry in Europe, the Americas, China, Japan, and rest of Asia.
ALV’s forward EV/Sales multiple of 0.98 is 14.8% lower than the industry average of 1.15. Its forward EV/EBITDA multiple of 7.91% is 18% lower than the industry average of 9.64.
ALV’s trailing-12-month Capex/Sales of 5.84% is 85.7% higher than the 3.14% industry average. Its trailing-12-month asset turnover ratio of 1.31x is 31.8% higher than the 1x industry average.
During its fiscal third quarter, ended September 30, ALV’s net sales increased 12.8% year-over-year to $2.60 billion. Its adjusted operating income grew 40.5% from its year-ago value to $243 million. ALV’s gross profit came in at $465 million, indicating a 21.4% rise year-over-year. The company’s adjusted EPS increased 35% year-over-year to $1.66.
The consensus revenue estimate of 10.40 billion for the year ending December 2023 represents a 17.7% increase year-over-year. Its EPS is expected to grow 72.2% year-over-year to $7.58 for the same period. ALV’s shares have gained 33.7% year-to-date to close the last trading session at $102.42.
ALV’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall rating of B, which equates to a Buy in our proprietary rating system.
It is ranked #28 out of 63 stocks in the A-rated Auto Parts industry. It has a B grade for Growth and Quality. To see additional ALV’s ratings for Value, Stability, Sentiment and Momentum, click here.
Wabash National Corporation (WNC)
WNC designs, manufactures, and distributes connected solutions for the transportation, logistics, and distribution industries. The company operates through two segments: Transportation Solutions and Parts & Services.
On October 26, 2023, WNC announced a significant expansion of its Wabash Parts distribution network and Trailers as a Service (TaaS)℠ capabilities through a strategic joint venture with Fernweh Group LLC aimed at enhancing the company’s e-commerce platform and partner ecosystem. This expansion will also enable WNC to provide more efficient and reliable trailer services to its customers, further solidifying its position as a leader in the industry.
WNC’s forward non-GAAP P/E of 4.63x is 73.2% lower than the industry average of 17.3x. Its forward EV/EBIT of 4.19x is 72.5% lower than the industry average of 15.24x.
WNC’s trailing-12-month ROCE of 50.60% is 313.7% higher than the 12.23% industry average. Its trailing-12-month ROTA of 16% is 222.3% higher than the 4.96% industry average.
For the fiscal third quarter ended September 30, 2023, WNC’s net sales increased came in at $632.83 million. Its gross profit rose 33.6% over the prior year quarter to $122.91 million. The company’s net income attributable to common shareholders increased 53% year-over-year to $55.33 million. Also, its EPS came in at $1.16, representing an increase of 58.9% year-over-year.
Analysts expect WNC’s revenue to increase 3% year-over-year to 2.58 billion for the year ending December 2023. Its EPS is expected to grow 106.7% year-over-year to $4.65 for the same period. It has surpassed EPS estimates in all four trailing quarters. Shares of WNC have lost marginally over past month to close the last trading session at $21.53.
It’s no surprise that WNC has an overall B rating, equating to a Buy in our POWR Ratings system. It has an A grade for Value and a B for Quality. It is ranked #21 in the B-rated Auto & Vehicle Manufacturers industry.
Beyond what is stated above, we’ve also rated WNC for Growth, Stability, Momentum and Sentiment. Get all WNC ratings here.
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.
RACE shares rose $1.56 (+0.43%) in premarket trading Monday. Year-to-date, RACE has gained 67.74%, versus a 19.18% rise in the benchmark S&P 500 index during the same period.
About the Author: Rashmi Kumari
Rashmi is passionate about capital markets, wealth management, and financial regulatory issues, which led her to pursue a career as an investment analyst. With a master's degree in commerce, she aspires to make complex financial matters understandable for individual investors and help them make appropriate investment decisions.
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