As vehicles continue to evolve with increasing complexity and technology integration, there is a growing demand for specialized components and parts. This trend is fostering a favorable environment for companies operating in this space.
Against the backdrop, it could be wise to scoop up the shares of three fundamentally sound auto part companies, Magna International Inc. (MGA), Adient plc (ADNT), and Genuine Parts Company (GPC), which are well poised to capitalize on the industry’s demand.
August witnessed the sale of 1,341,169 new vehicles in the United States, reflecting a remarkable 16.2% surge compared to August 2022 and a 2% increase from July 2023. This uptick in new car sales for August indicates a resurgence in the automotive sector as supply chains gradually stabilize.
Moreover, the auto parts industry is poised for substantial growth, driven by the extensive integration of technology and heightened research and development investments. This growth trajectory is anticipated to propel the industry to reach a market value of $755 billion by 2026, demonstrating a CAGR of 7.5% from 2023 to 2032.
On top of it, the surging demand for Electric Vehicles (EVs) plays a pivotal role in propelling growth within the automotive industry. In the U.S. market alone, revenue generated from EV sales is projected to experience a substantial upswing, reaching approximately $70.10 billion by 2023, exhibiting a robust CAGR of 18.2% spanning 2023 to 2028.
Additionally, it's worth noting that the auto parts industry, a subset of the broader automotive industry, doesn't exclusively rely on car sales for revenue. Within this industry, some firms offer aftermarket maintenance services to enhance the durability and lifespan of vehicles.
Given the swift adoption of electric vehicles and the steady rise in car sales, the global automotive repair and maintenance services market is projected to reach approximately $915.88 billion in 2023 and is anticipated to maintain a steady growth trajectory, with a 7.2% CAGR, ultimately reaching $1.85 trillion by 2033.
In light of the aforementioned statistics, the outlook for the auto industry seems highly promising, presenting significant opportunities in the years ahead. To that end, let us dig deeper into the fundamentals of the featured Auto Parts picks, beginning with number three.
Stock #3: Magna International Inc. (MGA)
Headquartered in Aurora, Canada, MGA designs, engineers, and manufactures components, assemblies, systems, subsystems, and modules for original equipment manufacturers of vehicles and light trucks worldwide. It operates through four segments: Body Exteriors & Structures; Power & Vision; Seating Systems; and Complete Vehicles.
On September 1, MGA inaugurated its new facility for the mirrors division in Rayong Province, Thailand, as a response to the growing business opportunities in exterior mirrors. This newly established facility spans approximately 130,000 square feet.
In the upcoming three years, MGA anticipates generating 150 more job opportunities, resulting in a total workforce of approximately 570 employees once the facility reaches its full production capacity.
On August 10, MGA revealed its plans to expand its lighting division in Querétaro, Mexico, in response to receiving multiple business awards for rear lighting projects from various automakers. This development underscores MGA’s strong commitment to developing new lighting products and innovations.
MGA’s trailing-12-month CAPEX/ Sales of 5.10% is 58.6% higher than the 3.22% industry average. Its trailing-12-month asset turnover ratio of 1.37x is 37.3% higher than the industry average of 1.00x. In addition, the stock’s trailing-12-month cash per share of $4.48 is 86.4% higher than the industry average of $2.40.
For the fiscal second quarter, which ended on June 30, 2023, MGA’s net sales increased 17.3% year-over-year to $10.98 billion. Also, during the same period, the company’s net income and EPS amounted to $354 million and $1.18 versus a net loss and loss per share of $145 million and $0.45 in the prior-year quarter, respectively.
The consensus revenue estimate of $10.46 billion for the third quarter (ending September 2023) represents a 12.8% increase year-over-year. The consensus EPS estimate of $1.32 for the current quarter indicates a 23.8% improvement year-over-year. Moreover, the company has an excellent surprise history, surpassing the consensus revenue estimates in each of the trailing four quarters.
Over the past three months, the stock has gained 12.9% to close the last trading session at $59.52.
MGA’s POWR Ratings reflect this robust outlook. The stock has an overall B rating, translating to Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
It has a B grade for Growth and Stability. In the 60-stock A-rated Auto Parts industry, it is ranked #28. Click here to see MGA’s ratings for Value, Momentum, Sentiment, and Quality.
Stock #2: Adient plc (ADNT)
Based in Dublin, Ireland, ADNT operates as an investment holding company that engages in the design, development, manufacture, and marketing of seating systems and components for passenger cars, commercial vehicles, and light trucks.
On August 1, ADNT, along with Toyota and Multimatic, jointly achieved the top position in the "module lightweighting" category of the 2023 Altair Enlighten Awards for their innovative design of the ProX IsoDynamic Seat's back frame. This award recognizes ADNT’s achievements in reducing carbon emissions, conserving water and energy, and maximizing material reuse and recycling efforts.
ADNT’s trailing-12-month cash per share of $9.69 is 303.7% higher than the $2.40 industry average. Furthermore, its trailing-12-month asset turnover ratio of 1.63x is 63.3% higher than the industry average of 1.00x.
In the fiscal third quarter, which ended on June 30, 2023, ADNT’s net sales increased 16.4% year-over-year to $4.06 billion, while its gross profit rose 74.6% from the year-ago value to $302 million.
In addition, during the same period, the company’s net income and EPS amounted to $95 million and $0.77 versus a net loss and loss per share of $20 million and $0.32 in the prior-year quarter, respectively.
Analysts expect ADNT’s revenue and EPS for the first quarter of fiscal 2024 (ending December 2023) to increase 12.1% and 32.4% year-over-year to $4.15 billion and $0.45, respectively. Moreover, the company topped its revenue estimates in each of the trailing four quarters, which is excellent.
The stock has gained 22.7% over the past year to close the last trading session at $38.90.
ADNT’s strong fundamentals are reflected in its POWR Ratings. It has an overall rating of B, which equates to Buy in our proprietary rating system.
It has a B grade for Growth and Value. Within the same A-rated industry, it is ranked #25. Click here to see the other ratings of ADNT for Momentum, Stability, Sentiment, and Quality.
Stock #1: Genuine Parts Company (GPC)
GPC distributes automotive replacement parts and industrial parts and materials. It operates through the Automotive Parts Group and Industrial Parts Group segments. The company distributes automotive replacement parts for hybrid and electric vehicles, trucks, SUVs, buses, motorcycles, farm vehicles, etc.
On August 15, GPC declared a regular quarterly dividend of $0.95 per share on the company's common stock, payable to its shareholders on October 2, 2023.
The company’s annual dividend of $3.80 translates to a 2.50% yield on the prevailing prices, while its four-year average dividend yield is 2.76%. Its dividend payouts have grown at CAGRs of 6.1% and 5.7% over the past three and five years, respectively. Also, it has a record of 66 years of consecutive dividend growth.
The stock’s trailing-12-month net income margin of 5.30% is 23.1% higher than the 4.30% industry average. Its trailing-12-month ROTA of 7.16% is 85.9% higher than the 3.85% industry average. Also, GPC’s trailing-12-month ROCE of 31.45% is 186.9% higher than the industry average of 10.9%.
For the fiscal second quarter, which ended on June 30, 2023, GPC’s net sales increased 5.6% year-over-year to $5.92 billion, while its gross profit grew 8.9% from the year-ago value to $2.13 billion.
In the same period, the company’s net income and EPS amounted to $344.49 million and $2.44, respectively. Also, its total current assets came in at $9.08 billion, up 3% compared to $8.82 billion as of December 31, 2022.
Street expects GPC’s revenue and EPS for the third quarter (ending September 2023) to increase 4.4% and 9.1% year-over-year to $5.92 billion and $2.43, respectively. Moreover, the company surpassed its EPS estimates in each of the trailing four quarters, which is promising.
GPC’s shares slumped marginally intraday to close the last trading session at $150.83
It’s no surprise that GPC has an overall rating of B, which equates to Buy in our proprietary rating system. It has a B grade for Sentiment and Quality. Out of 60 stocks in the same industry, it is ranked #24.
In addition to the POWR Ratings we’ve stated above, we also have GPC’s ratings for Growth, Value, Momentum, and Stability. Get all GPC ratings here.
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GPC shares were trading at $150.80 per share on Thursday afternoon, down $0.98 (-0.65%). Year-to-date, GPC has declined -12.04%, versus a 17.27% rise in the benchmark S&P 500 index during the same period.
About the Author: Anushka Mukherjee
Anushka's ultimate aim is to equip investors with essential knowledge that empowers them to make well-informed investment choices and attain sustained financial prosperity in the long run.
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