BorgWarner Inc. (BWA), Gentex Corporation (GNTX), Tenneco Inc (TEN): Automotive Suppliers – Performance Review, Part Two

This emission-control company is growing increasingly fast

Tenneco Inc (NYSE:TEN) is a producer of emission-control and ride-control products and systems for light, commercial and specialty-vehicle applications.

The company reported a 9.1% year-over-year increase in adjusted earnings for the first quarter of 2013. Net income grew 7.3% reaching $44 million. The main driver behind the growth is higher revenues from its Clean Air division.

Tenneco Inc (NYSE:TEN)’s emission-control segment will benefit through 2015, when tighter emission regulations take effect. Emission regulations that are being implemented globally will only help the company, accelerating its growth in its on-road and off-road commercial-vehicle markets. Management’s low-end expectation of 10% annualized revenue growth over the next five years shows confidence. In addition, the company’s diversification strategy has helped with significant business. Tenneco Inc (NYSE:TEN) aims to broaden its product portfolio and reach a dominant position through acquisitions and alliances. I support these initiatives.

However, high customer concentration and relatively weak demand for high-margin aftermarket parts puts a cap to the company’s results. Pricing pressure from original equipment manufacturers is always present in this industry, with automotive retailers consolidating and pushing for lower pricing. In addition, aftermarket demand is low as improved quality increased the useful life of parts.

Bottom line

BorgWarner Inc. (NYSE:BWA)’s efforts to control costs and its innovation in the fuel-economy field are encouraging. But competition and high dependence on Europe’s performance make it a stock to be avoided.

I am confident about the Gentex Corporation (NASDAQ:GNTX)’s future. The company has a leading product and prospects for expansion. It is a safe long-term investment.

Tenneco Inc (NYSE:TEN)’s business will expand along with emissions regulations, which are getting more and more strict. The company will maintain market share and increase its sales but its low pricing power and susceptibility to economic cycles make me stay away from its shares for now.

Vanina Egea has no position in any stocks mentioned. The Motley Fool recommends BorgWarner and Gentex. The Motley Fool owns shares of Gentex.

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