The U.S. auto industry has made a remarkable comeback, fueled by improved economic conditions and pent-up consumer demand. Therefore, quality auto stocks like Blue Bird Corporation (BLBD), Honda Motor Co., Ltd. (HMC), and REV Group, Inc. (REVG) could be solid buys this month. But before we delve into the fundamentals of the stocks, let's first explore the industry landscape.
The automotive industry has demonstrated remarkable resilience despite facing numerous hurdles, such as inflationary pressures and supply chain disruptions. Despite these obstacles, the industry has managed to maintain operations, cater to consumer demands, and strategically navigate pathways toward growth.
Global consumer demand for EVs is rising, fueled by conducive government policies, automakers’ increased commitment toward greener transportation solutions, and escalating concerns over climate change.
Furthermore, the soaring integration of advanced digital technologies like the Internet of Things (IoT), Artificial Intelligence (AI), and blockchain significantly transforms manufacturing procedures within the automobile sector. The global automotive AI market is expected to be worth $7 billion by 2027, with a CAGR of 24.1%.
In addition, the global automotive market is expected to grow from $2.74 trillion in 2021 to $3.58 trillion in 2031, expanding at a CAGR of 3%.
Considering these conducive trends, let’s take a look at the fundamentals of the three best Auto & Vehicle Manufacturers stocks, starting with number 3.
Stock #3: Blue Bird Corporation (BLBD)
BLBD designs, engineers, manufactures and sells school buses and related parts in the United States, Canada, and internationally. It operates through two segments: Bus and Parts.
In October, BLBD and Nuvve Holding Corp. (NVVE) replaced Martinsville ISD's diesel buses with electric ones, making it the first all-electric school bus fleet in Texas. This highlights the success of BLBD's electric buses and NVVE's charging infrastructure, potentially boosting demand for their products.
BLBD’s net sales for the fiscal third quarter ended July 1, 2023, increased 42.8% year-over-year to $294.28 million. Its non-GAAP net income came in at $14.49 million, compared to a non-GAAP net loss of $2.87 million in the prior-year quarter.
Also, its non-GAAP EPS came in at $0.44, compared to a non-GAAP loss per share of $0.09 in the year-ago period. Additionally, its adjusted EBITDA rose 218.6% year-over-year to $28.02 million.
BLBD’s trailing-12-month levered FCF margin of 10.93% is 73.3% higher than the 6.31% industry average. Its trailing-12-month asset turnover ratio of 2.55x is 220.9% higher than the 0.79x industry average.
The consensus revenue estimate of $1.19 billion for the fiscal year ending September 2024 represents a 6.8% increase year-over-year. Its EPS is expected to grow at 57.9% year-over-year to $1.37 for the same period. It surpassed revenue estimates in each of the four trailing quarters.
BLBD’s stock has gained 59.2% over the past year and 68.5% year-to-date to close the last trading session at $18.05.
BLBD’s POWR Ratings reflect this promising outlook. The stock has an overall rating of B, equating to a Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
BLBD also has an A grade for Growth and a B for Sentiment and Quality. It is ranked #14 out of 52 stocks in the B-rated Auto & Vehicle Manufacturers industry. Click here for the additional POWR Ratings for Value, Momentum and Stability for BLBD.
Stock #2: Honda Motor Co., Ltd. (HMC)
Headquartered in Tokyo, Japan, HMC develops, manufactures, and distributes motorcycles, automobiles, power, and other products in Japan, North America, Europe, Asia, and internationally. It operates through four segments: Motorcycle Business; Automobile Business; Financial Services Business; and Power Product and Other Businesses.
On November 7, HMC at EICMA in Milan, announced its complete 24YM lineup, including four new models, substantial improvements to four others, and a concept version of their next electric vehicle for European customers. This should add to the company’s revenue stream.
Additionally, HMC announced the development of the world’s first Honda E-Clutch system for motorcycles, enabling smooth starting and gear shifting without the need for the rider to operate the clutch lever. It offers flexibility and will be implemented in HMC’s FUN motorcycle models in the future.
HMC’s sales revenue for the second quarter that ended September 30, 2023, increased 17.1% year-over-year to ¥4.98 trillion ($32.86 billion). The company’s operating profit increased 30.7% year-over-year to ¥302.13 billion ($1.99 billion).
Its profit for the period increased 32.1% from the prior-year period to ¥270.98 billion ($1.79 billion). In addition, its EPS came in at ¥51.49, representing an increase of 39.4% year-over-year.
HMC’s trailing-12-month levered FCF margin of 8.42% is 63.4% higher than the 5.15% industry average. Its trailing-12-month cash from operations of $7.81 billion is substantially higher than the $240.04 million industry average.
Analysts expect HMC’s revenue for the fiscal year ending March 2024 to increase 385.3% year-over-year to $129.35 billion. Likewise, its EPS for fiscal 2024 is expected to increase 42.4% year-over-year to $4.07.
Over the past year, the stock has gained 29.6% to close the last trading session at $31.08. It has also gained 36% year-to-date.
It’s no surprise that HMC has an overall rating of A, which translates to a Strong Buy in our proprietary POWR Ratings system.
It has an A grade for Stability and a B for Value and Quality. It is ranked #4 in the same industry. Beyond what we stated above, we also have given HMC grades for Growth, Momentum, and Sentiment. Get all HMC ratings here.
Stock #1: REV Group, Inc. (REVG)
REVG designs, manufactures, and distributes specialty vehicles and related aftermarket parts and services. The company’s customized vehicle solutions cater to diverse applications, such as essential needs for public services, commercial infrastructure, and consumer leisure.
On August 31, REVG launched its model year 2024 American Coach, Fleetwood RV, and Holiday Rambler coaches, featuring innovative designs and family-friendly features. The introduction of these models, including the unique Kid Kave™ feature, is expected to generate enthusiasm among RVers, potentially boosting demand and positively impacting REVG's business in the recreational vehicle market.
For the fiscal third quarter ended July 31, 2023, REVG’s net sales stood at $680 million, up 14.3% year-over-year. Its gross profit and operating income stood at $80.20 million and $25.70 million, up 18.3% and 49.4% from the year-ago quarter, respectively.
Its adjusted net income and adjusted net income per common share stood at $20.90 million and $0.35, up 46.2% and 45.8% from the same period last year, respectively.
REVG’s trailing-12-month asset turnover ratio of 1.89x is 138.4% higher than the 0.79x industry average.
The consensus revenue estimate of $2.63 billion for the fiscal year ending October 2024 represents a marginal increase year-over-year. Its EPS is expected to grow 30.1% year-over-year to $1.53 for the same year. It surpassed EPS and revenue estimates in each of the four trailing quarters.
The stock has gained 48.3% over the past six months and 19.3% year-to-date to close the last trading session at $15.05.
REVG’s POWR Ratings reflect its strong fundamentals. The stock has an overall A rating, equating to a Strong Buy in our POWR Ratings system. It has a B grade for Growth, Value, Stability, and Quality. It is ranked first in the same industry.
Beyond what is stated above, we’ve also rated REVG for Momentum and Sentiment. Get all REVG ratings here.
What To Do Next?
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HMC shares were trading at $32.17 per share on Tuesday afternoon, up $1.09 (+3.51%). Year-to-date, HMC has gained 42.50%, versus a 18.58% 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.
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