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

Cars and Drivers

Published: May 6, 2016 10:35 am

Last Updated: January 13, 2020 9:46 am

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.