Yahoo Finance Autoliv (ALV) Plunges 27% in a Year: Still Safe to Hold?
Shares of auto parts provider Autoliv, Inc. ALV have plunged around 27% over the past year. Supply chain challenges, high commodity and operational costs, an expected decline in vehicle production and unfavorable forex translations have hurt the stock’s run on the bourses over the past year. But we believe that this Stockholm-based supplier of automotive safety systems still holds long-term promise, and that you should retain it in your portfolio for the time being. Autoliv currently carries a Zacks Rank #3 (Hold) and has a VGM Score of A.
You can see the complete list of today’s Zacks Rank #1 (Strong Buy) stocks here.
Headwinds Affecting Price Performance
Volatile light-vehicle production and logistics challenges are driving inefficiencies in inventories. Inefficiency in inventory continued to be in excess of $100 million at the end of third-quarter 2022. Autoliv expects near-term production in North America and Europe to be soft amid the chip crisis. This may dampen the demand for Autoliv's products, leading to lost sales in the regions. Also, high energy costs, especially in Europe, are a concern.
Rising prices of raw materials remain another major headwind. During the last reported quarter, high commodity costs hurt the firm’s operating margins by $96 million. The company continues to expect commodity cost inflation to limit margins in the near term. Apart from steel and non-ferrous metals (aluminum and magnesium), high prices of yarn, especially polyester and polyamide or nylon, will also have a significant impact on 2022 profits. Adjusted operating margin is expected in the band of 6-7% in 2022, lower than 8.3% in 2021.
As a result of Autoliv’s global presence, a significant portion of its revenues and expenses are denominated in currencies other than the U.S. dollar. Consequently, Autoliv is subject to unfavorable foreign currency translations, mainly relating to a stronger U.S. dollar versus the Japanese yen, Korean won, and euro. In the last reported quarter, forex negatively impacted the operating profit by $41 million. For 2022, currency translation effects are assumed to be around negative 6%.
High R&D costs and capex requirements to launch technologically advanced products are hurting the cash flow of Autoliv and the trend is expected to continue. Discouragingly, ALV trimmed its operating cash flow expectations for 2022. It now expects operating cash flow in the range of $700-$750 million, down from $750-$850 million guided earlier.
Stay Invested Despite the Challenges
Autoliv is at the forefront of automotive safety technology and is set to benefit from higher content per vehicle. Content per vehicle growth is expected to be led by the continued upgrading of government regulations and crash test ratings, highly safety-focused societies, and opportunities coming from new vehicle interiors. With content per vehicle on the rise, Autoliv is set to gain from the growing demand of front center airbags, knee airbags, seatbelts and battery cut-off switches.
The soaring popularity of electric vehicles is extending Autoliv’s exposure to this red-hot market, thereby opening new growth avenues for the firm. While electrification may strain near-term margins due to high launch-related R&D costs and capex requirements, it will boost the firm’s long-term prospects. Autoliv is adapting well to the changing dynamics of the auto industry and expects its operations to become carbon neutral by 2030.
Collaboration between Autoliv and Geely to accelerate the launch of new advanced safety technologies to the market also augurs well. The scope of the cooperation includes safety for high-level autonomous driving, intelligent steering wheel technology, a 360° occupant safety system, and the development of a sustainable leather replacement. The partnership is likely to increase Autoliv’s innovation capabilities and technical competitiveness in the automotive market.
Balance sheet strength and investor-friendly moves of the firm are also praiseworthy. The company’s liquidity, including cash and unused loan facilities, was $1.6 billion at the end of September 2022. Its time interest earned ratio of 10.95 compares favorably with the industry’s 3.02. Long-term debt totaled $1,037 million, decreasing from $1,687 million as of Sep 30, 2021. The company has manageable leverage of 41%, lower than the auto sector’s 56%.
The firm remains committed to increasing shareholder returns thanks to its strong financials. Since 2019, the company has returned $700 million to shareholders. To investors' delight, Autoliv hiked its quarterly dividend by 3% to 66 cents a share in November. This marks the second consecutive annual 3% increase since it re-instated its dividend in the second quarter of 2021.
The Zacks Consensus for Autoliv’s 2023 earnings and sales implies year-over-year growth of 64% and 8%, respectively.
2 Auto Stocks You Can Bet on Now
Two better-ranked players from the broader sector that you can invest in are CarParts.com PRTS and China Automotive Systems CAAS. Both these stocks currently sport a Zacks Rank #1.
Based in Torrance, CarParts operates as an online provider of aftermarket auto parts and accessories. The Zacks Consensus Estimate for PRTS’ 2022 earnings and sales implies year-over-year growth of 85% and 13.2%, respectively. The consensus mark for the 2023 bottom line has improved 58.3% over the past 60 days.
China Automotive Systems is a leading supplier of power steering components and systems in China. The Zacks Consensus Estimate for CAAS’ 2022 earnings and sales implies year-over-year growth of 72.2% and 8.3%, respectively. The consensus estimate for CAAS’ current-year earnings has been revised 7 cents upward over the past 30 days.
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Autoliv, Inc. (ALV) : Free Stock Analysis Report
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