As vehicles evolve with increasing complexity and technology integration, there is a growing demand for specialized components and parts. This trend is fostering a favorable environment for companies operating in this space.
Against the backdrop, it could be wise to scoop up the shares of three fundamentally sound auto part companies: Genuine Parts Company (GPC), Boyd Group Services Inc. (BYDGF), Standard Motor Products, Inc. (SMP), and Allison Transmission Holdings, Inc. (ALSN), which look poised for robust returns this October.
The auto parts industry is poised for substantial growth, driven by the extensive integration of technology and heightened research and development investments. This growth trajectory is anticipated to propel the industry to reach a market value of $755 billion by 2026 and demonstrate a CAGR of 7.5% from 2023 to 2032.
On top of it, the surging demand for Electric Vehicles (EVs) plays a pivotal role in propelling growth within the automotive industry. In the U.S. market alone, revenue generated from EV sales is projected to experience a substantial upswing, reaching approximately $161.60 billion by 2028, exhibiting a robust CAGR of 18.2% spanning 2023 to 2028.
In addition, within this industry, some firms offer aftermarket maintenance services to enhance the durability and lifespan of vehicles.
Given the swift adoption of electric vehicles and the steady rise in car sales, the global automotive repair and maintenance services market is projected to reach approximately $915.88 billion in 2023. It is anticipated to maintain a steady growth trajectory, with a 7.2% CAGR, ultimately reaching $1.85 trillion by 2033.
In light of the aforementioned statistics, the outlook for the auto industry seems highly promising, presenting significant opportunities in the years ahead. To that end, let us dig deeper into the fundamentals of the featured Auto Parts picks, beginning with number four.
Stock #4: Genuine Parts Company (GPC)
GPC distributes automotive replacement parts and industrial parts and materials. It operates through the broad segments of Automotive Parts Group and Industrial Parts Group.
GPC’s trailing-12-month net income margin of 5.30% is 20.6% higher than the 4.40% industry average. Its trailing-12-month ROE and ROTC of 31.45% and 13.27% are 176.1% and 118.4% higher than the industry averages of 11.39% and 6.08%, respectively.
On August 15, GPC declared a regular quarterly dividend of $0.95 per share on the company’s common stock, which was payable to its shareholders on October 2, 2023. It boasts an impressive track record of 66 years of consistent dividend growth.
The company’s annual dividend of $3.80 translates to a 2.64% yield on the prevailing prices, while its four-year average dividend yield is 2.75%. Its dividend payouts have grown at CAGRs of 6.1% and 5.7% over the past three and five years, respectively.
On August 1, GPC announced the acquisition of Recambios y Accesorios Gaudí, S.L. (Gaudi) by its subsidiary, Alliance Automotive Group (AAG), a leading player in Spain’s automotive sector. This acquisition should strengthen GPC’s position in Spain and enhance the potential for expanding the NAPA brand in Europe.
GPC’s net sales increased 5.6% year-over-year to $5.92 billion in the fiscal second quarter that ended June 30, 2023. Its gross profit grew 8.9% from the year-ago quarter to $2.13 billion. The company’s adjusted net income and adjusted net income per common share stood at $344.49 million and $2.44, up 10% and 10.9% from the prior-year period, respectively.
Analysts expect GPC’s revenue and EPS for the fourth quarter (ending December 2023) to increase 4.4% and 9.1% year-over-year to $5.76 billion and $2.24, respectively. Moreover, the company surpassed its EPS estimates in each of the trailing four quarters.
Shares of GPC slumped 4% over the past month to close the last trading session at $144.06. However, it has gained marginally intraday.
GPC’s strong fundamentals are reflected in its POWR Ratings. It has an overall rating of B, which equates to Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
It has a B grade for Quality. Within the A-rated 60-stock Auto Parts industry, it is ranked #23.
In addition to the POWR Ratings we’ve stated above, one can access GPC’s ratings for Growth, Value, Momentum, Stability, and Sentiment here.
Stock #3: Boyd Group Services Inc. (BYDGF)
BYDF, headquartered in Winnipeg, Canada, operates non-franchised collision repair centers and retail auto glass services under various brand names in North America. The company also offers third-party claims services to insurance companies and vehicle owners.
On September 15, BYDGF declared a cash dividend for the third quarter of 2023 of C$0.147 per common share, payable to shareholders on October 27, 2023. Its annual dividend of $0.43 yields 0.25% on prevailing prices.
BYDGF’s trailing-12-month gross profit margin of 44.83% is 48% higher than the industry average of 30.30%, while its trailing-12-month asset turnover ratio of 1.26x is 55.6% higher than the industry average of 0.81x. The company’s trailing-12-month levered FCF margin of 8.01% compares with the industry average of 5.56%.
For the fiscal second quarter that ended June 30, 2023, BYDGF’s total sales increased 22.9% year-over-year to $753.24 million, while its gross profit increased 23.5% year-over-year to $342.67 million.
The company’s adjusted net earnings and adjusted net EPS came in at $26.99 million and $1.26, representing increases of 99.1% and 100%, respectively, from the prior-year quarter.
Street expects BYDGF’s revenue to increase 17.1% year-over-year in the to-be-reported quarter (ended September 2023) to $732.31 million. For the fiscal year 2023, its revenue is projected to reach $2.95 billion, registering an increment of 21.3% from the prior-year period. Additionally, it topped the revenue estimates in each of the trailing four quarters.
Over the past year, the company’s stock has gained 35.9% to close the last trading session at $175.50. It has gained 13.2% year-to-date.
BYDGF’s POWR Ratings reflect this promising outlook. It has an overall rating of B, which indicates a Buy in our proprietary rating system.
BYDGF has an A grade for Stability and Quality and a B for Growth. Out of the 60 stocks in the same industry, it is ranked #19.
To see the other ratings of BYDGF for Value, Momentum, and Sentiment, click here.
Stock #2: Standard Motor Products, Inc. (SMP)
SMP is a manufacturer and distributor of automotive parts for the automotive aftermarket industry through three segments: Engineered Solutions; Vehicle Control; and Temperature Control.
On August 2, SMP announced a quarterly dividend of 29 cents per share on the common stock outstanding, which was paid to stockholders on September 1, 2023. Its annual dividend of $1.16 yields 3.53% on current prices. Its dividend payouts have grown at a CAGR of 33.4% over the past three years.
During the second quarter that ended June 30, 2023, SMP’s net sales amounted to $353.08 million, while its gross profit increased 5.1% year-over-year to $101.27 million.
Its non-GAAP earnings from continuing operations stood at $18.58 million or $0.84 per share in the same period. Also, the company’s net cash inflow from operating activities was $39.37 million versus the prior-year quarter’s cash outflow of $95.33 million.
In addition, as of June 30, 2023, its cash and total current assets came in at $23.02 million and $787.88 million, compared to $21.15 million and $762.44 million as of December 31, 2022, respectively.
The consensus revenue estimate of $318.37 million for the fiscal fourth quarter (ending December 2023) represents a 3.3% increase year-over-year. The consensus EPS estimate of $0.71 for the next quarter indicates a 2.2% year-over-year growth. The company has an impressive earnings surprise history, surpassing the consensus EPS estimates in three of the trailing four quarters.
The stock’s trailing-12-month EBIT and levered FCF margins of 10.40% and 7.51% are 41.4% and 47.4% higher than the 7.36% and 5.10% industry averages, respectively. Likewise, its trailing-12-month ROTC of 9.58% is 57.6% higher than the 6.08% industry average.
SMP’s shares have declined 1.1% intraday to close the last trading session at $32.84.
SMP’s robust prospects are reflected in its POWR Ratings. It has an overall rating of A, which equates to a Strong Buy in our proprietary rating system. It has a B grade for Value, Sentiment, and Quality. Within the same industry, it is ranked #11.
In addition to the POWR Ratings we’ve stated above, we also have SMP’s ratings for Growth, Momentum, and Stability. Get all SMP ratings here.
Stock #1: Allison Transmission Holdings, Inc. (ALSN)
ALSN designs, manufactures, and sells commercial and defense fully automatic transmissions for medium and heavy-duty commercial vehicles and medium and heavy-tactical U.S. defense vehicles worldwide.
On September 6, ALSN was awarded a contract worth approximately $13 million for the second phase of the U.S. Army’s Low-Rate Initial Production contract for the M10 Booker Combat Vehicle, which is one of the U.S. Army’s leading modernization initiatives and is designed to increase the combat power of the Army’s Infantry Brigade Combat Teams.
The U.S. Army is expected to purchase more than 500 MPF vehicles through 2035, amounting to approximately $250 million in revenue for ALSN’s Defense end market.
On August 31, ALSN paid the shareholders a quarterly dividend of $0.23 per share on the company’s common stock for the third quarter of 2023. It pays a $0.92 per share dividend annually, translating to a 1.55% yield on the current share price. Its dividend payouts have grown at CAGRs of 10.9% and 8.5% over the past three and five years, respectively.
ALSN’s trailing-12-month EBIT and net income margins of 29.64% and 21.17% are 204.2% and 241.8% higher than the respective industry averages of 9.74% and 6.19%. Its trailing-12-month levered FCF margin of 16.77% is 201.8% higher than the 5.56% industry average.
For the fiscal second quarter that ended June 30, 2023, ALSN’s net sales increased 17.9% year-over-year to $783 million. Its adjusted EBITDA grew 26.9% from the year-ago value to $288 million. Furthermore, the company’s net income rose 43.4% from the prior-year quarter to $175 million, while earnings per share came in at $1.92, up 52.4% year-over-year.
Analysts expect ALSN’s revenue and EPS for the fiscal fourth quarter (ending December 2023) to increase 4% and 1.1% year-over-year to $746.62 million and $1.54, respectively. It surpassed revenue and EPS estimates in each of the trailing four quarters.
The stock has gained 68.6% over the past year to close the last trading session at $59.30. Over the past six months, it gained 37.6%
It’s no surprise that ALSN has an overall A rating, equating to a Strong Buy in our POWR Ratings system.
It has an A grade for Quality and a B for Stability and Sentiment. It is ranked #5 within the same industry.
Beyond what is stated above, we’ve also rated ALSN for Growth, Value, and Momentum. Get all ALSN ratings here.
What To Do Next?
43 year investment veteran, Steve Reitmeister, has just released his 2024 market outlook along with trading plan and top 11 picks for the year ahead.
GPC shares were trading at $146.56 per share on Monday afternoon, up $2.50 (+1.74%). Year-to-date, GPC has declined -13.97%, versus a 14.19% rise in the benchmark S&P 500 index during the same period.
About the Author: Anushka Dutta
Anushka is an analyst whose interest in understanding the impact of broader economic changes on financial markets motivated her to pursue a career in investment research.
4 Auto Stocks Poised for Potential Returns This October StockNews.com
