After enduring some challenging times, the auto industry rebounded strongly this year as supply-related issues eased and inflation cooled significantly. Despite the high borrowing costs, the demand for automobiles is expected to remain strong in the near term.
Considering these factors, buying fundamentally strong auto stocks Wabash National Corporation (WNC) and Blue Bird Corporation (BLBD) could be wise. On the other hand, one should wait for a better entry point in Tesla, Inc. (TSLA), given its uncertain prospects.
Before diving deeper into the fundamentals of these stocks, let’s discuss why the automobile industry is expected to perform well.
Sales of new vehicles last year dropped to their lowest level since 2011. The decline in sales was caused by the challenges posed by high inflation, rising interest rates, and supply chain constraints. However, new vehicle sales have increased this year as more vehicles become available and inflation eased considerably.
According to a joint forecast from J.D. Power and GlobalData, total new-vehicle sales in the United States for September 2023 are expected to increase 13.8% year-over-year to 1,309,900 units. Cox Automotive has forecasted that new vehicle sales will rise 8% over the prior year to 15 million in 2023.
Additionally, the auto industry is experiencing tailwinds from the growing adoption of electric vehicles (EVs). Thanks to government incentives, price cuts, a wide range of vehicles to choose from, and expanding charging infrastructure, EVs continue to form a major part of new vehicle sales. Cox Automotive expects fully electric vehicle sales in the United States this year to break the 1 million vehicles mark for the first time.
Let’s discuss the featured stocks in detail.
Stocks to Buy:
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 September 18, 2023, WNC announced a multi-year agreement with Rockland Flooring for laminated wood trailer flooring. Rockland Flooring has been a WNC supplier for 15 years, and the agreement will help generate long-term value by ensuring the supply of wood flooring, which remains constrained in the trailer industry.
WNC’s vice president of global procurement, Richard Mansilla, said, “As our new dry van trailer manufacturing facility reaches full capacity in 2024, poised to yield an additional 10,000 units annually, this agreement will allow us to secure wood flooring above what we can produce out of Wabash’s wood flooring production facility in Harrison, Arkansas.”
On August 25, 2023, WNC hosted a ribbon-cutting event for its advanced dry van trailer manufacturing facility in Lafayette, Indiana. The strategic capacity expansion, announced in July 2021, will help produce an additional 10,000 dry van trailers annually. The impact of this additional capacity will be realized in 2024.
In terms of the trailing-12-month net income margin, WNC’s 7.75% is 24.9% higher than the 6.21% industry average. Likewise, its 10.84% trailing-12-month EBIT margin is 11.3% higher than the industry average of 9.74%. Furthermore, the stock’s 3.46% trailing-12-month Capex/Sales is 17.5% higher than the industry average of 2.94%.
For the fiscal second quarter ended June 30, 2023, WNC’s net sales increased 6.8% year-over-year to $686.62 million. Its gross profit rose 93.5% over the prior year quarter to $151.03 million. The company’s net income attributable to common shareholders increased 229.6% year-over-year to $74.33 million. Also, its EPS came in at $1.54, representing an increase of 234.8% year-over-year.
Analysts expect WNC’s EPS and revenue for the quarter ended September 30, 2023, to increase 40.2% and 3.6% year-over-year to $1.02 and $678.70 million, respectively. It surpassed the consensus EPS estimates in each of the trailing four quarters. Over the past year, the stock has gained 31.8% to close the last trading session at $20.84.
WNC’s strong fundamentals are reflected in its POWR Ratings. It 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.
Within the B-rated Auto & Vehicle Manufacturers industry, it is ranked #17 out of 53 stocks. It has an A grade for Value and a B for Quality. Click here to see the additional ratings of WNC for Growth, Momentum, Stability, and Sentiment.
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 May 25, 2023, BLBD announced the opening of its EV Build-up Center at Fort Valley, Ga., to meet rising electric school bus demand, aiming to increase production from 4 to 20 vehicles daily. School districts benefit from over $10 billion in funding, including $5 billion from the Biden Administration's Bipartisan Infrastructure Law, to support the transition to clean school bus transportation.
The EV Build-up Center will enable the company to increase its long-term production capacity to 5,000 electric school buses a year.
In terms of the trailing-12-month levered FCF margin, BLBD’s 10.93% is 96.6% higher than the 5.56% industry average. Likewise, its 2.55x trailing-12-month asset turnover ratio is 214.1% higher than the industry average of 0.81x.
BLBD’s net sales for the fiscal third quarter ended July 1, 2023, increased 42.8% year-over-year to $294.28 million. Its non-GAAP net income came in at $14.49 million, compared to a non-GAAP net loss of $2.87 million in the prior-year quarter.
Also, its non-GAAP EPS came in at $0.44, compared to a non-GAAP loss per share of $0.09 in the year-ago period. Additionally, its adjusted EBITDA rose 218.6% year-over-year to $28.02 million.
For the quarter ended September 30, 2023, BLBD’s revenue is expected to increase 12.6% year-over-year to $290.11 million. Its EPS for the quarter ending March 31, 2024, is expected to increase 16.4% year-over-year to $0.31. Over the past year, the stock has gained 126.2% to close the last trading session at $20.56.
BLBD’s positive outlook is reflected in its POWR Ratings. It has an overall rating of B, translating to Buy in our proprietary rating system.
It is ranked #22 in the same industry. It has a B grade for Growth and Quality. To see the other ratings of BLBD for Value, Momentum, Stability, and Sentiment, click here.
Stock to Watch:
Tesla, Inc. (TSLA)
TSLA designs, develops, manufactures, leases, and sells electric vehicles and energy generation and storage systems in the United States, China, and internationally. It operates in two segments, Automotive, and Energy Generation and Storage.
In terms of the trailing-12-month EBITDA margin, TSLA’s 17.86% is 62.3% higher than the 11.01% industry average. Likewise, its 12.97% trailing-12-month net income margin is 195.1% higher than the 4.40% industry average. Additionally, its 1.18x trailing-12-month asset turnover ratio is 18.5% higher than the 1x industry average.
On the other hand, TSLA’s 3.22% trailing-12-month levered FCF margin is 36.8% lower than the 5.10% industry average. Its 21.49% trailing-12-month gross profit margin is 39.3% lower than the 35.41% industry average.
TSLA’s total revenues for the second quarter ended June 30, 2023, increased 47.2% year-over-year to $24.93 billion. Its non-GAAP net income attributable to common stockholders increased 20.2% year-over-year to $3.15 billion. Its adjusted EBITDA rose 22.7% year-over-year to $4.65 billion. The company’s non-GAAP EPS came in at $0.91, representing an increase of 19.7% year-over-year.
Its adjusted EBITDA margin declined 372 basis points year-over-year to 18.7%.
Street expects TSLA’s revenue for the quarter ended September 30, 2023, to increase 13.6% year-over-year to $24.37 billion. Its EPS for the same quarter is expected to decline 27.3% year-over-year to $0.76. The stock has gained 100.1% year-to-date to close the last trading session at $246.53.
TSLA’s uncertain outlook is reflected in its POWR Ratings. It has an overall rating of C, equating to a Neutral in our proprietary rating system.
It is ranked #39 in the Auto & Vehicle Manufacturers industry. It has a B grade for Quality and a C for Growth, Momentum, and Sentiment. Click here to see the other ratings of TSLA for Value, Stability, and Quality.
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.
WNC shares were trading at $21.09 per share on Wednesday morning, up $0.17 (+0.81%). Year-to-date, WNC has declined -5.74%, versus a 11.72% rise in the benchmark S&P 500 index during the same period.
About the Author: Dipanjan Banchur
Since he was in grade school, Dipanjan was interested in the stock market. This led to him obtaining a master’s degree in Finance and Accounting. Currently, as an investment analyst and financial journalist, Dipanjan has a strong interest in reading and analyzing emerging trends in financial markets.
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