Despite the challenging geopolitical landscape, the auto parts industry races ahead, fueled by a surging appetite for batteries, diesel filters, and cutting-edge automotive components.
As a result, it seems wise to invest in solid auto parts stocks Weichai Power Co., Ltd. (WEICY), Allison Transmission Holdings, Inc. (ALSN), and Standard Motor Products, Inc. (SMP), which are well-positioned to harness the industry's burgeoning growth. But before we delve into the stocks, let's first examine the state of the industry.
Despite the pandemic's toll on global automotive sales, suppliers resiliently navigated the challenging landscape by sustaining operations, fulfilling customer needs, and actively pursuing avenues for expansion.
The industry also explored new approaches to navigate pandemic-induced supply chain disruptions and address worsening bottlenecks amplified by the Russia-Ukraine war. In an effort to increase supply and meet these issues, automakers are shifting from "just-in-time" to "inventory banking" strategies.
Moreover, automakers are fast-tracking the deployment of advanced technologies, such as driver assistance systems, in modern Electric Vehicles (EVs). These vehicles boast cutting-edge connectivity and infotainment systems designed to appeal to younger consumers and meet their evolving preferences.
As technology rapidly develops, creating an increased demand for batteries, diesel engine filters, and innovative automotive components, the auto parts market is set to expand. With a CAGR of 4.3%, the automotive OEM market is predicted to increase from $36 billion in 2023 to $50.5 billion by 2032, as per Market Research Future.
Furthermore, according to Persistence Market Research, the overall automotive parts aftermarket sector is projected to expand at a CAGR of 5.5%, reaching $984 billion by 2033. The NASDAQ US Benchmark Auto Parts Index’s 12% returns over the past six months demonstrate investors' interest in auto parts stocks.
Given this context, it seems wise to add fundamentally sound stocks WEICY, ALSN, and SMP to your portfolio as they are set to benefit from the automotive industry's expansion.
Let's examine their fundamentals now.
Weichai Power Co., Ltd. (WEICY)
Headquartered in Weifang, China, WEICY researches, develops, and distributes vehicles, components, and non-automotive engines. The company also produces forklifts and provides warehouse technical services. Its segments include Engines; Automobiles and Automobile Components; and Intelligent Logistics segments.
On February 18, WEICY released the world's first commercialized large-power metal-supported SOFC product. It boasts a net power generation efficiency exceeding 60% and achieves the highest cogeneration efficiency among large SOFC systems worldwide, reaching 92.55%. This could bode well for WEICY's market growth and profitability.
For the first quarter of 2023, which ended March 31, 2023, WEICY’s revenue increased 18.2% year-over-year to RMB 53.43 billion ($7.58 billion). Its operating profit rose 53.1% from the year-ago value to RMB 2.57 billion ($365.23 million).
Moreover, the company’s total comprehensive income grew 28.4% from the prior year’s period to RMB 2.86 billion ($405.97 million), while EPS came in at RMB 0.21, up 61.5% year-over-year.
The consensus revenue estimate of $28.96 billion for the fiscal year ending December 2023 reflects a 13.6% year-over-year improvement. Likewise, the consensus revenue estimate of $31.52 billion for the next fiscal year (ending December 2024) indicates an 8.8% rise year-over-year.
Also, the company surpassed the consensus revenue estimates in all four trailing quarters, which is impressive. The stock has gained 32.7% over the past six months to close the last trading session at $12.45.
WEICY's robust fundamentals are apparent in its POWR Ratings. The stock has an overall rating of B, equating to Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, each weighted to an optimal degree.
WEICY has an A grade for Value and a B for Growth, Momentum, and Stability. It is ranked #22 in the A-rated 58-stock Auto Parts industry.
In addition to the POWR Ratings I’ve just highlighted, you can see WEICY’s ratings for Quality and Sentiment here.
Allison Transmission Holdings, Inc. (ALSN)
ALSN designs and manufactures propulsion solutions for commercial and defense vehicles. It is also a prominent manufacturer of medium and heavy-duty fully automatic transmissions. Operating in 150+ countries, ALSN has 1,400+ independent distributor and dealer locations worldwide.
On April 25, ALSN and Foton, an international commercial vehicle manufacturer, jointly announced ALSN's provision of propulsion solutions for 400 Foton AUV Compressed Natural Gas (CNG) buses. The buses will be exported to Nuevo Leon and Mexico, supporting the state's initiative to modernize public transportation.
This allows ALSN to solidify its position as a key player in the modernization of public transportation, leading to increased market opportunities and financial growth.
Moreover, on April 4, ALSN announced that it had expanded its partnership with SANY, a global heavy equipment manufacturer for the mining and construction markets, by signing a Letter of Intent to supply the Allison 4000 Series™ transmission for SANY’s SKT105 96-ton Wide Body Mining Dump (WBMD) truck for the India market.
By offering reliable, durable transmissions that enhance driver comfort and increase productivity, ALSN secures a differentiated value proposition, leading to customer satisfaction and improved profitability.
For the fiscal first quarter that ended March 31, 2023, ALSN’s net sales increased 9.5% year-over-year to $741 million. Its adjusted EBITDA grew 13.1% from the year-ago value to $276 million. Furthermore, the company’s net income rose 31.8% from the prior year’s period to $170 million, while EPS came in at $1.85, up 42.3% year-over-year.
Analysts expect ALSN’s revenue to increase 7% year-over-year to $2.96 billion for the fiscal year ending December 2023. The company’s EPS for the current year is expected to grow 20.7% from the prior year to $6.68. Moreover, the company surpassed its consensus revenue and EPS in three of four trailing quarters.
Shares of ALSN have gained 25.4% over the past nine months to close the last trading session at $49.26.
ALSN’s positive outlook is apparent in its POWR Ratings. The stock has an overall rating of B, equating to Buy in our proprietary rating system.
ALSN has an A grade for Quality. It has ranked #15 within the Auto Parts industry.
Click here to access additional ALSN ratings for Growth, Value, Momentum, Stability, and Sentiment.
Standard Motor Products, Inc. (SMP)
SMP manufactures and distributes automotive parts for vehicle maintenance, service, and repair in the aftermarket industry. Its segments include Engine Management and Temperature Control. The company primarily serves automotive aftermarket retailers, warehouse distributors, and original equipment service part manufacturers.
On March 8, SMP announced its ongoing expansion of hybrid and electric vehicle parts. With the increasing sales of these vehicles, the company is well-prepared to cater to the growing demand for high-quality replacement parts. This provides SMP an opportunity to boost its revenue and enhance profitability.
During the fiscal first quarter that ended March 31, 2023, SMP’s net sales increased 1.6% year-over-year to $328.03 million. Its gross profit also grew 1.6% from the year-ago value to $91.27 million.
As of March 31, 2023, the company’s cash and cash equivalents stood at $24.20 million, compared to $21.15 million as of December 31, 2022. In addition, its current assets amounted to $803.85 million, compared to $762.44 million as of December 31, 2022.
The consensus revenue estimate of $1.43 billion for the fiscal year ending December 2024 reflects a marginal year-over-year improvement. The consensus EPS estimate of $4.08 for the same year indicates a 15.2% rise year-over-year. Moreover, the company surpassed the consensus EPS estimates in three of four trailing quarters.
The stock has gained 2.6% over the past five days to close the last trading session at $37.03.
SMP’s solid fundamentals are apparent in its POWR Ratings. The stock has an overall rating of B, translating to Buy in our proprietary rating system.
SMP has an A grade for Sentiment and a B for Quality. It has ranked #19 within the same industry.
Click here to access additional SMP ratings (Growth, Value, Stability, and Momentum).
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WEICY shares were trading at $12.19 per share on Friday morning, down $0.26 (-2.09%). Year-to-date, WEICY has gained 16.10%, versus a 9.79% rise in the benchmark S&P 500 index during the same period.
About the Author: Aanchal Sugandh
Aanchal's passion for financial markets drives her work as an investment analyst and journalist. She earned her bachelor's degree in finance and is pursuing the CFA program. She is proficient at assessing the long-term prospects of stocks with her fundamental analysis skills. Her goal is to help investors build portfolios with sustainable returns.
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