All in all, with the future of automobile industry looking good and product innovations/improvements from TRW, the company should perform well.
Competitors
TRW competes with Autoliv Inc. (NYSE:ALV), Delphi Automotive PLC (NYSE:DLPH) and a few privately held companies.
Autoliv reported its results for the second quarter last month and it beat consensus estimates on both revenue and earnings. Consolidated revenue increased 5.2% to $2.19 billion, beating consensus estimates of $2.17 billion. The year over year increase was primarily driven by increasing importance given to safety by prominent Chinese car manufacturers.
Operating income of the company grew 1.9% and stood at $194 million. Organic sales went up 6% and company ended the quarter with an EPS of $1.44, which beat the consensus estimate of $1.39. As the largest supplier of automotive safety equipment globally, Autoliv Inc. (NYSE:ALV) has an excellent track record of profitability, which is driven by high customer switching costs and innovative product launches year after year.
Delphi Automotive PLC (NYSE:DLPH) needs no introduction to anyone who has been associated with the automotive industry because it is a leading manufacturer and supplier of electrical and electronic, powertrain, safety, and thermal technology solutions for the automotive, commercial vehicle, and other market segments.
As you would see, it is not just dealing with just automobile safety related products. It is just one of the segments that Delphi caters to. Here’s an interesting Q&A with Delphi on “Advanced Driver Assistance Systems.”
Just like TRW, Delphi also has considerable exposure to the European market. This has not been good in 2013 for Delphi, where quarterly revenue and earnings fell 17% and 15%, respectively, to stand at $4 billion and $0.88 per share, with weakened demand from Europe being a key contributing factor.
For the year 2013, Delphi estimated that EPS will see an 11% growth year over year on the presumption that global automobile production would see an increase of 2% and decline in Europe of 5%.
Conclusion
With a booming auto market and having a list of strong clients, one can easily expect TRW to get better in the future and continue appreciating. What’s more attractive is that TRW still trades at a cheap 9 times earnings even after appreciating so much. Given the prospects it has, I believe that it is a sweet deal even at these levels.
ANUP SINGH has no position in any stocks mentioned. The Motley Fool recommends Autoliv.
The article Looking for Another Way to Benefit From Auto Sales? Watch This Stock originally appeared on Fool.com and is written by ANUP SINGH.
ANUP is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
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