Delphi Automotive PLC (DLPH): What Should You Do With TRW Automotive Holdings Corp. (TRW) After Huge Insider Selling?

In the past six months, insiders of TRW Automotive Holdings Corp. (NYSE:TRW) have sold more than 10.3 million shares of the company in 13 transactions. Notably, its Chairman and CEO John Plant has sold more than 101,000 shares of the company since the end of Feb. 24, with the total transaction worth of around $5.9 million. The Blackstone Group L.P. (NYSE:BX) also sold more than 9.2 million shares in the company for nearly $545 million. Should we turn bearish about this company along with these insiders? Let’s take a closer look and find out.

Delphi (DLPH)

Business snapshot

TRW Automotive Holdings Corp. (NYSE:TRW) is one of the largest global suppliers of automotive systems, modules and components to global automotive OEMs and related aftermarkets, operating in four main business segments: Chassis Systems, Occupant Safety Systems, Electronics and Automotive Components. The majority of its revenue, $10.32 billion, or 62.8% of the total 2012 revenue, was generated from the Chassis Systems segment, while the Occupant Safety Systems segment ranked second with $3.28 billion in revenue, or 20% of the total sales, while the Electronics and Automotive Components segments generated $1 billion and $1.8 billion in revenue, respectively.

In terms of geographical regions, TRW derived the majority of its revenue, 42.5% of the total revenue, from Europe, while North America was the second biggest revenue contributor, accounting for 36.1% of the total sales. The company had quite a concentrated base of customers that are automotive OEMs. The four biggest OEMs customer groups are Volkswagen (23.5% of sales), Ford Motor Company (NYSE:F) (17.6%), Chrysler (10.4%), and General Motors Company (NYSE:GM) (10%).

Cash generation with reasonable leverage

Since 2009, TRW Automotive Holdings Corp. (NYSE:TRW) has experienced a decent growth in both revenue and earnings. Its revenue increased from $11.6 billion in 2009 to $16.4 billion in 2012, while the net income shot up significantly from $55 million to more than $1 billion during the same period. In 2012, the operating cash flow was $956 million and the free cash flow was $333 million. TRW employs a reasonable amount of leverage in its operations. As of December 2012, it had nearly $3.6 billion in total stockholders’ equity, $1.22 billion in cash and around $1.34 billion in both long and short-term debt. In addition, it also recorded nearly $1.3 billion in pensions and other benefits.

Peer comparison

What makes me interested is the company’s low valuation. At around $55 per share, TRW Automotive Holdings Corp. (NYSE:TRW) is worth nearly $6.6 billion on the market. The market values TRW at only 4.6 times EV/EBITDA. Compared to its peers, including Delphi Automotive PLC (NYSE:DLPH) and Autoliv Inc. (NYSE:ALV), TRW has the cheapest valuation. Autoliv, at $68 per share, has a total market cap of nearly $6.5 billion. It is valued a bit more expensively than TRW at 5.85 times EV/EBITDA. The biggest company among the three is Delphi, with around $13.6 billion in total market cap. At around $43 per share, Delphi has the most expensive valuation at nearly 7 times EV/EBITDA.

Indeed, Delphi Automotive PLC (NYSE:DLPH) seems to deserve the highest valuation due to its highest operating margin and highest return on invested capital. Delphi’s operating margin is the highest among the three at 10.7%, while the operating margin of Autoliv is nearly 9.5%. TRW generates the lowest operating margin among the three, at only 7.15%. The return on invested capital of Delphi is nearly 22.4%, while the ROIC of TRW is around 18.94%. Autoliv generates the lowest return on invested capital at only 10.8%.

Income investors might like Autoliv the most due to its highest dividend yield of 2.9%. Delphi Automotive PLC (NYSE:DLPH) only pays investors dividends with a yield of 1.6%, whereas TRW does not pay any dividend.

My Foolish take

With a global manufacturing footprint, long-standing customer relationships with big OEMs customers, consistent cash generation and a low valuation, TRW Automotive Holdings Corp. (NYSE:TRW) could be a good stock to hold in a long run for investors.

The article What Should You Do With TRW After Huge Insider Selling? originally appeared on Fool.com and is written by Anh HOANG.

Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.

blog comments powered by Disqus
Insider Monkey Headlines
Insider Monkey Small Cap Strategy
Insider Monkey Small Cap Strategy

Insider Monkey beat the market by 52 percentage points in 24 months. Our beta is only 1.2 (don't click this link if beating the market isn't important to you).

Lists

Picture Perfect: The 6 Smartphones with the Best Cameras

The 10 Best Countries To Work In the World

A Profitable Day At The Track: 5 Tips For Betting On Horses

Tearing You Apart: 6 Bad Habits That Ruin Relationships

Learning on the Job: The 6 Biggest Mistakes Parents Make

Shopaholics Rejoice: The 12 Biggest Malls in the World

Fright Night: 10 Horror Movies Based on True Stories

Mach Mania: The 10 Fastest Jets in the World

Military Heavyweights: The 10 Countries with the Most Tanks

All In: The 7 Richest Poker Players in the World

Abracadabra: The 10 Best Magicians in the World

The 10 Richest Asian Countries in the World in 2014

Eyes in the Sky: 10 Things You Need to Know About Drones

Rising Stars: The 6 Best Silicon Valley Startups

Military Muscle: The 5 Most Advanced Armies in South America

All that Glitters: The 7 Most Luxurious Jewelry Brands in the World

5 Things You Didn’t Know About ISIS but Should

Empowering Your Money: The 5 Best Energy Stocks to Invest In

The 11 Best Android Apps You Can’t Get on iOS

The 10 Most Important International Conflicts in 2014

Mood Enhancers: The 20 Most Uplifting Songs of all Time

Lover Beware: The 8 Countries that Cheat the Most

Breath of Fresh Air: The 25 Countries with the Best Air Quality on the Planet

Singles Beware: The 8 Worst Mistakes Made on First Dates

Healthy and Happy: The 10 Countries with Lowest Healthcare Costs

The 6 Best Company Team Building Activities to Build Workplace Camaraderie

Ships Ahoy: The 10 Busiest Shipping Ports in the World

10 Productivity Tips to Save You Time and Help You Do More With Less

Grab a Bite: The Most Popular Fast Food Restaurants in America

Friday Night Thirst: The 10 Most Popular Cocktails in the World

The 6 Greatest Unsolved Mysteries We May Never Figure Out

7 Useless Products You Never Should’ve Bought

The 5 Reasons Why You’re Single and Miserable

The 7 Most Addictive Foods in the World We Can’t Stop Eating (Even Though We Should)

5 Amazing Places You Can Swim with Dolphins

The Top 7 Most Livable Countries In The World

The 10 Most Expensive Baseball Cards Ever Pulled From A Pack

The 5 Easiest Second Languages to Learn for English Speakers

Silver Spoon: The 6 Richest Families in the World

The 20 Countries with the Largest Prison Populations in the World

The Top 10 Richest Actors in the World

The 10 Best Airline Stocks to Invest In Before They Fly Too High

Burger Kings: The 10 Most Expensive Burgers in the World

The 10 Most Ethnically Diverse Countries in the World

The 10 Most Exclusive Credit Cards in the World

The 10 Most Expensive Cruise Ships in the World

The 10 Fastest Supercomputers in the World

The 10 Best Countries for Doing Business 2015

6 Most Expensive Fruits In The World

10 Worst Airlines in the World

Subscribe

Enter your email:

Delivered by FeedBurner

X

Thanks! An email with instructions is sent to !

Your email already exists in our database. Click here to go to your subscriptions

Insider Monkey returned 47.6% in its first year! Wondering How?

Download a complete edition of our newsletter for free!