Coupled with increased vehicle demand, technological integration could keep the auto industry resilient. Given this backdrop, quality auto parts stocks Lear Corporation (LEA), Gentex Corporation (GNTX), and Dana Incorporated (DAN) could be solid buys now. Read on….
The automotive industry has faced rapid changes in its operations. In 2023, the auto industry is anticipated to be shaped by factors like the emergence of fuel-cell Electric Vehicles (EVs), self-driving vehicles, and increased integration of digital technology.
Increased adoption of advanced technology for automobiles could drive the auto parts industry on a positive growth trajectory. Therefore, let us explore some auto parts stocks, Lear Corporation (LEA), Gentex Corporation (GNTX), and Dana Incorporated (DAN), which could be ideal buys now for the reasons mentioned in the article.
Several challenges, such as inflationary pressures, chip scarcity, and other supply-chain disruptions, have impacted the auto industry. Despite such headwinds, the auto industry is poised to thrive thanks to the growing sales. The annual sales pace for April is estimated to hit 15.9 million, which is a sizable increase from April 2022.
The automotive market is undergoing a rapid transformation that is more decentralized and digital, and in 2023 is projected to reach unprecedented amounts. Moreover, amid supply constraints and high prices, more Americans have been holding onto their cars. Rising vehicle ages would be good for aftermarket auto parts suppliers.
The automotive parts aftermarket industry is anticipated to increase at a CAGR of 5.5% from 2023 to 2033, reaching $984 billion, while the global auto parts manufacturing market is expected to grow at a CAGR of 3.2% to reach around $2.74 trillion by 2028.
Considering the industrial tailwinds, auto parts stocks LEA, GNTX, and DAN, with notable fundamental strength, could be solid buys now.
Lear Corporation (LEA)
LEA designs, develops, engineers, manufactures, assembles, and supplies automotive seating, electrical distribution systems, and related components for automotive original equipment manufacturers in North America, Europe, Africa, Asia, and South America.
On May 6, LEA announced it had completed its acquisition of I.G. Bauerhin (IGB), further expanding its suite of in-vehicle comfort technologies. IGB’s products should enhance LEA’s Thermal Comfort Systems portfolio.
LEA’s forward EV/Sales of 0.44x is 61.1% lower than the industry average of 1.13x. Its forward Price/Sales multiple of 0.32 is 60.7% lower than the industry average of 0.82.
LEA paid a quarterly dividend of $0.77 to its shareholders on March 29, 2023. The company pays an annual dividend of $3.08, which translates to a yield of 2.56% at the current price level. It has a four-year average dividend yield of 1.72%. Its dividend payments have grown at a CAGR of 10.7% and 7% over the past three and five years, respectively.
During the fiscal first quarter that ended April 30, 2023, LEA’s net sales increased 12.2% year-over-year to $5.85 billion. Net income attributable to LEA grew 190.7% year-over-year to $143.6 million, while net income per share attributable to LEA increased 193.9% year-over-year to $2.41.
LEA’s EPS is expected to increase 47.6% year-over-year to $2.64 for the fiscal second quarter ending June 2023. The company’s revenue for the same quarter is expected to increase 11.6% year-over-year to $5.66 billion. Additionally, it topped consensus EPS and revenue estimates in each of the trailing four quarters, which is impressive.
Shares of LEA lost 1.8% intraday to close the last trading session at $120.53.
LEA’s POWR Ratings reflect its promising outlook. The stock has an overall rating of B, which translates to Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.
The stock has a B grade for Growth and Value. It is ranked #26 in the A-rated 59 stock Auto Parts industry.
Click here to see the rating of LEA for Momentum, Stability, Sentiment, and Quality.
Gentex Corporation (GNTX)
GNTX designs, develops, manufactures, markets, and supplies digital vision, connected cars, dimmable glass, and fire protection products in the United States, Germany, Japan, Mexico, and internationally. It operates through Automotive Products and Other segments.
On May 1, GNTX announced that it had closed an agreement with ADASKY as the lead investor in a Series B round of financing. It also established a commercial, engineering, and manufacturing collaboration agreement to help bring ADASKY’s proprietary technology to market. The collaboration should bode well for GNTX in the foreseeable future.
On February 8, GNTX declared a first-quarter dividend of $0.12 per share, which was paid to the shareholders on April 19. Its forward annual dividend of $0.48 translates to a 1.70% yield on current prices. GNTX’s four-year average dividend yield is 1.64%. Its dividends have grown at 1.1% and 3.2% CAGRs over the past three and five years, respectively.
GNTX’s forward non-GAAP PEG of 0.81x is 35.6% lower than the industry average of 1.25x.
For the fiscal first quarter that ended March 31, 2023, GNTX’s net sales stood at $550.76 million, up 17.6% year-over-year. Its gross profit increased 8.9% year-over-year to $174.74 million.
Its net income and net income per share grew 11.5% and 13.5% year-over-year to $97.58 million and $0.42, respectively. Moreover, GNTX’s total current assets stood at $1.01 billion as of March 31, 2023, compared to $948.65 million as of December 31, 2022.
GNTX’s EPS is expected to increase 29% year-over-year to $0.40 for the fiscal second quarter ending June 2023. The company’s revenue for the same quarter is expected to increase 18.2% year-over-year to $547.82 million.
Shares of GNTX have gained 1.1% over the past month to close the last trading session at $27.80.
It’s no surprise has an overall rating of B, which translates to Buy in the POWR Ratings system.
The stock has a B grade for Stability, Sentiment, and Quality. It is ranked #27 within the same industry.
We have also rated GNTX for Growth, Value, and Momentum. Get all ratings here.
Dana Incorporated (DAN)
DAN provides power conveyance and energy management solutions for vehicles and machinery in North America, Europe, South America, and the Asia Pacific. It operates in four segments: Light Vehicle Drive Systems; Commercial Vehicle Drive and Motion Systems; Off-Highway Drive and Motion Systems; and Power Technologies.
On May 10, DAN announced that its wholly-owned subsidiary, Dana Financing Luxembourg S.à r.l., had priced its offering of €425 million aggregate principal amount of 8.500% Senior Notes due 2031. The 2031 Notes will be fully and unconditionally guaranteed by DAN.
On May 2, DAN announced an expansion of its Spicer Electrified e-Powertrain offerings to include a family of e-Transmissions for various medium-duty electric-vehicle applications. This has been engineered to provide the highest level of efficiency and performance with maximum startability, gradability, and road speed.
Ryan Laskey, senior vice president of Dana Commercial Vehicle Drive and Motion Systems, said, “This new technology is a significant step towards further electrifying the medium-duty commercial vehicle market, and we are proud to be at the forefront of this revolution.”
On April 26, DAN’s board declared a quarterly dividend of $0.10 per share, payable to DAN’s stockholders on June 2, 2023. Its forward annual dividend of $0.40 translates to a 2.97% yield on current prices. DAN’s four-year average dividend yield is 2.08%. Its dividend has grown at 7.4% CAGR over the past five years.
DAN’s forward EV/Sales of 0.45x is 60.3% lower than the industry average of 1.13x. Its forward Price/Sales multiple of 0.18 is 78% lower than the industry average of 0.82.
For the fiscal first quarter that ended March 31, DAN’s net sales stood at $2.64 billion, up 6.6% year-over-year. Its adjusted net income attributable to the parent company and adjusted EPS surged 56.5% and 56.3% year-over-year to $36 million and $0.25, respectively. Its adjusted EBITDA came in at $204 million, up 20% from the prior-year quarter.
Moreover, DAN’s cash, cash equivalents, and restricted cash stood at $419 million for the quarter that ended March 31, 2023, compared to $280 million for the year-ago quarter.
DAN’s EPS is expected to increase 91.1% year-over-year to $0.15 for the fiscal second quarter ending June 2023. The company’s revenue for the same quarter is expected to increase 5.1% year-over-year to $2.72 billion. Additionally, it topped consensus revenue estimates in each of the trailing four quarters.
Shares of DAN lost 3.1% intraday to close the last trading session at $13.05.
DAN’s strong prospects are reflected in its POWR Ratings system. It has an overall rating of B, which translates to Buy in the proprietary rating system.
The stock has a B grade for Growth, Value, and Sentiment. It is ranked #28 within the same industry.
To get additional ratings for DAN (Momentum, Stability, and Quality), click here.
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LEA shares were trading at $121.60 per share on Wednesday morning, up $1.07 (+0.89%). Year-to-date, LEA has declined -1.41%, versus a 8.09% rise in the benchmark S&P 500 index during the same period.
About the Author: Sristi Suman Jayaswal
The stock market dynamics sparked Sristi’s interest during her school days, which led her to become a financial journalist. Investing in undervalued stocks with solid long-term growth prospects is her preferred strategy.Having earned a master’s degree in Accounting and Finance, Sristi hopes to deepen her investment research experience and better guide investors.
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