Top Auto Components Stocks For 2016

Published Wed, 27 Jul 2016 21:30 CET by

In 2015, the sales of automobiles in the U.S. have peaked at historic levels, setting a sales record of nearly 17.5 million vehicles, a 5.7% growth compared to the previous milestone of 17.4 million vehicles in 2000. In spite of the turbulent macroeconomic environment globally, the trend suggests improved margins, strong leverage in multiple regions globally and new capital investments. Through 2018, U.S. sales of vehicles are expected to be in line due to higher interest rates and an anticipated increase in the used cars.
This article discusses a small-cap and two mid-cap companies trading in the Automotive industry. Over the past 6 months, all three stocks performed great, suggesting high investor confidence and an upward trend. Their average debt-to-equity ratio is 0.27, indicating financially healthy companies with effective debt management, whereas their average beta 1.43 makes up for a safe investment. All three companies yield 1.73% on average, which is higher than the average yield 1.61% of the industry. Similarly, their average payout ratio of 28% is higher than the average payout ratio 15.2% of the Auto & Truck Manufacturers industry.

BorgWarner, Drew Industries and Gentex 6 Months Stock Performance Graph
BorgWarner (NYSE: BWA) is an Auburn Hills, Michigan-based leading supplier of highly engineered components and systems, primarily used in powertrain applications in the automotive industry. BorgWarner services one-third of the automotive market with Daimler, Ford and Volkswagen, and offers its products through its Engine and Drivetrain segments to original equipment manufacturers (OEMs) and tier one vehicle systems suppliers and the aftermarket for light, commercial, and off-highway vehicles.

Q1 2016 Results: In the first quarter of 2016, BorgWarner delivered good results. The challenging first half of 2015 has forced the company to adjust its sales and earnings projections. Nevertheless, the management expects to sustain strong operating margins and strong cash flows for the rest of 2016. Compared to Q1 2015, BorgWarner Q1 2016 results are as follows:

  • Revenues $2.27 billion, up 14.3& YoY from $1.98 billion
  • Gross profit margin down 5.3% YoY to 20.5% from 21.6%
  • Total operating expenses $2.0 billion from $1.7 billion, up 16.2% YoY
  • Operating income $264.2 million, up 1.8% YoY from $259.6 million
  • Net income $164.1 million, down 8.3% YoY from $178.9 million
  • Operating cash flow $34.4 million, up 5.2% YoY from $32.7 million

Dividend Growth: On April 27, BorgWarner declared a quarterly dividend of $0.13 per share, reaching an annualized dividend of $0.52 per share. The dividend yield is 1.63% at a payout ratio of 20%. The dividend growth since 2008 is 18.2%, or on average 2.3% annually.

2016 Outlook: For 2016, BorgWarner is expected to capitalize on the benefits of clean air legislation and increased demand for fuel efficiency. The company is specialized in the field, offering a highly innovative technology, which makes it competitive on a global scale. Revenue projections estimate a 10% average growth through 2017. Analysts estimate an average EPS of $3.51 through 2018, up 32.0% from current EPS $2.66 and an average earnings growth of 11% annually through 2020.

Drew Industries (NYSE: DW) is an Elkhart, Indiana-based manufacturer, and supplier of components for recreational vehicles and manufactured homes in the United States. Through its Recreational Vehicle Products (RV) and Manufactured Housing Products (MH), Drew Industries offers a range of products for the production and equipment of RVs as well as products used in the production of manufactured homes.

Q1 2016 Results: In the first quarter of 2016, Drew Industries delivered solid earnings growth with revenues reaching $422.8 million, up 17.0% YoY from $361.5 million in Q1 2015 due to increased wholesale shipments for total RVs and motorhomes and acquisitions – Marine Furniture business in January and RV Furniture Business in February. In addition, the company’s non-towable RV OEM sales have exceeded 33% of total revenues, thus driving margin performance, but also helping diversify the company and the markets outside RV. Gross profit margin grew 21.3% YoY to 25.6% from 21.1%. Total operating expenses reached $367.1 million from $329.6 million, an 11.4% YoY increase. Operating income grew 75.0% to $55.7 million from $31.8 million and net income reached $36.0 million, up 79.2% YoY from $20.1 million in the same quarter last year. Operating cash flow skyrocketed to $43.5 million from $7.1 million, a 510.2% YoY increase.

Dividend Strength & Outlook: On May 26, Drew Industries declared a quarterly dividend of $0.3 per share, thereby reaching an annualized dividend of $1.20 per share. The dividend yield is 1.33% at a payout ratio of 33%. The company is expected to sustain growth by capitalizing on consumer demand for RVs and seeking new product choices.
Through 2018, analyst consensus estimates an average EPS of $4.82, up 31.9% from current EPS $3.65, whereas dividend per share is expected in line.

Name Price ($) 52 wk low 52 wk high 52 wk low % 52 wk high % Market Cap ($ b) P/E D/E Beta Payout Ratio
BorgWarner 34.16 27.52 52.75 24.13% -35.24% 7.00 12.07 0.58 1.87 20%
Drew Industries 92.71 51.00 92.71 81.78% 0% 2.21 24.75 0.11 1.23 33%
Gentex 18.24 12.93 18.24 41.07% 0% 4.66 14.68 0.12 1.19 33%

Gentex (Nasdaq: GNTX) is a Zeeland, Michigan-headquartered diversified manufacturing company that engages in the design, development, manufacturing and sale of automotive automatic-dimming rearview mirrors, automotive electronics, dimmable aircraft windows, and fire protection products. Gentex serves the automotive, aviation and fire protection industries internationally, offering automotive products and automotive electronics for a range of vehicles as well as photoelectric smoke detectors and alarms for use in fire detection systems in commercial and residential establishments.

Q1 2016 results: In the first quarter of 2016, Gentex delivered strong results. Revenues reached $405.6 million, up 9.9% YoY from $368.9 million in the Q1 2015, generating a gross profit margin 39.1%, up 0.9% YoY from 38.8%. The increase in gross profit margin was due to purchasing cost reductions and leverage of fixed overhead costs. Total operating expenses increased 9.0% YoY to $284.7 million from $261.2 million. Operating income reached $120.9 million, from $107.7 million, a 12.2% YoY increase, whereas net income grew 4.0% YoY to $80.3 million from $7.2 million in the same quarter last year. Operating cash flow reached $151.4 million, from $108.0 million, a 40.3% YoY increase.

Dividend Policy & Outlook: On May 19, Gentex declared a quarterly dividend of $0.09 per share, thereby reaching an annualized dividend of $0.36 per share. The dividend yield is 2.24% at a payout ratio of 33%. In addition, the dividend growth since 2015 is 12.5%. In the first quarter of 2016, Gentex repurchased 3.1 million shares of its common stock and has approximately 6.4 million shares remaining available for repurchase based on its share repurchase plan. For 2016, Gentex plans to continue the repurchase of additional shares as long as market trends and macroeconomic stability allows it.
Through 2018, analysts estimate an average EPS of $1.29, up 17.6% from current EPS $1.10, whereas dividend per share is expected in line. Average earnings growth is estimated at 10.44% annually through 2020.

Stock name Dividend Yield
Gentex 1.70
Borgwarner 1.31

Articles featuring Gentex (GNTX):

May Dividend Income Report

In September 2017, I received slightly over $100K as a result of the commuted value of my pension plan. I decided to invest 100% of this money into dividend growth stocks. Each month I publish my results. I don't do this to brag, I do this to show you it's possible to build a portfolio during an all-time high market. The market will crash… eventually. In the meantime, I rather cash out on some juicy dividends! Portfolio holdings Numbers are as of June 1, 2018: Canadian... Read more

My Favorite Dividend Growth Stocks

Originally published on May 22, 2018 Throughout the years, I've studied, researched and tried many different investing styles. Since 2010, I've become a dividend growth investor, but not the classic buy & hold guy. I divide my portfolio into two distinct sections: a core portfolio and a growth portion. The core portfolio looks like the classic dividend buy & hold with solid (and boring) companies. I expect to hold these companies for a very long time, if not forever. The... Read more

3 Double-Digit Dividend Growth Buys Among Cyclicals

As we are seeing clear signs economy is doing well (sorry Black Swan fans!), I find plenty of buying opportunities in the cyclical sector. Interestingly enough, it seems that investors were so busy investing in techs and utilities that they completely forgot some fundamentals. Consumer stocks will continue to thrive even though they are not always sexy! Source; Ycharts Doing my stock research, I found 52 consumer cyclicals that are worth looking into. I’ve built this list... Read more

Upcoming Dividends: 27 Companies, 6 Increases, 5 Double-Digit Increases

Introduction The information presented below was created based on combining the "U.S. Dividend Champion" spreadsheet compiled by David Fish hosted here with upcoming dividend information from the Nasdaq. This meshes metrics about companies with dividend growth history with upcoming dividend payments (and whether those payments are increasing). These lists highlight the companies with a minimum 5-year dividend growth history. There are companies that, for various reasons, do not... Read more

7 Dividend Increases: March 5-9, 2018

I like monitoring dividend increases for stocks on my watch list of dividend growth stocks because I consider such stocks to be candidates for further analysis. Companies that regularly raise their dividends show confidence in the potential growth of future earnings. I look for announcements from stocks in the CCC list, but I use several screens to limit the number of stocks I monitor: Market cap ≥ $500 million No stocks that are being acquired No Over-The-Counter or Pink Sheet... Read more