Car and Truck Sales Remain Strong: 3 Companies Benefiting and Beating Estimates

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One thing that the huge market collapse and the Great Recession brought on was that everybody felt the need to tighten their proverbial belts. One thing that suffered was automobile and truck sales, and as a result the average age of vehicles in the United States soared. With those dark days firmly in the rear-view mirror, and interest rates remaining very low, more and more consumers have been buying new vehicles.

A new Baird research report points out that U.S. seasonally adjusted annual rate sales finished at more than 17.3 million, which was above the first-quarter level of 17.1 million. In total, unit demand rose 3% and trucks sales rose a stunning 11%. Furthermore, inventory and incentives both remain stable and supportive of healthy demand conditions.

The companies that benefit from these strong sales, in addition to the automobile manufacturers themselves, are the original equipment manufacturers (OEMs) and the companies that sell to them. OEMs are companies that make a part or subsystem that is used in another company’s end product. The Baird analysts have six rated Overweight and the following three look very attractive.

BorgWarner

This company is a leading OEM with solid upside potential. BorgWarner Inc. (NYSE: BWA) develops, manufactures and sells engineered automotive systems and components primarily for powertrain applications worldwide. The company’s Engine segment offers turbochargers, turbo actuators and timing systems, such as timing chains, variable cam timing products, crankshaft and camshaft sprockets, tensioners, guides and snubbers, HY-VO front-wheel drive transmission chains and four-wheel drive chains.

The Drivetrain segment develops and manufactures friction and mechanical products, including dual clutch modules, friction clutch modules, friction and steel plates, transmission bands, torque converter clutches, one-way clutches, and torsional vibration dampers. BorgWarner sells its products to OEMs of light vehicles, consisting of passenger cars, sport-utility vehicles, vans and light trucks, as well as commercial vehicles.

The company beat first-quarter earnings estimates, but there was some concern over the cautious tone of senior management when results were released. Revenues increased 14.3% year over year outpaced the Wall Street consensus forecast.

Shareholders receive a 1.53% dividend. The Baird price target is $45, and the Thomson/First Call consensus target is $41.50. The stock closed on Thursday at $33.85.


Delphi Automotive

This company used to be owned by GM and also has been acting well. Delphi Automotive PLC (NYSE: DLPH) manufacturers vehicle components and provides electrical and electronic, powertrain and safety technology solutions to the automotive and commercial vehicle markets worldwide. The company sells its products to the OEMs, and aftermarket for replacement parts, including the aftermarket operations of its OEM customers, as well as to other distributors and retailers.

The company posted very solid first-quarter results recently, with an earnings increase of 12.4% year over year, beating the Wall Street estimate. Revenues came in 7% higher year over year, but slightly below estimates.

Delphi investors receive a 1.67% dividend. The $95 Baird price objective compares to a consensus target of $91.40. The shares closed Thursday at $69.31.

Johnson Controls

This company posted outstanding earnings and raised estimates for the rest of 2016. Johnson Controls Inc. (NYSE: JCI) operates as a diversified technology and industrial company worldwide. Its Building Efficiency segment designs, produces, markets and installs integrated heating, ventilating and air conditioning systems, as well as building management systems, controls and security and mechanical equipment. This segment also provides technical services, energy management consulting, residential air conditioning and heating systems, and industrial refrigeration products.

The company’s Automotive Experience segment designs and manufactures interior products and systems for passenger cars and light trucks, including vans, pickup trucks, and sport/crossover utility vehicles serving OEMs. The company’s Power Solutions segment produces lead-acid automotive batteries for passenger car, light truck and utility vehicles, as well as offers advanced battery technologies to power start-stop, hybrid and electric vehicles. It serves automotive original equipment manufacturers and the general vehicle battery aftermarket.

Johnson Controls posted adjusted earnings that beat analysts’ estimates, while its revenue was in line with Wall Street’s expectations.

Shareholders are paid a solid 2.86% dividend. The $52 Baird price target is well above the consensus target of $48.07. The stock closed Thursday at $40.50.


With all three companies posting outstanding results, and giving solid forward guidance, they make sense for growth stock investors looking to add stocks with good upside potential. The combination of still-low gasoline prices and interest rates is also a tailwind.