In a turnaround from a sluggish start earlier in this year, new car and truck sales in the United States gained momentum in April, hitting a four-month high, even amid high-interest rates. Last month, automobile sales revved up to an annual rate of 15.7 million, edging slightly higher than March's 15.6 million.
Given the resilience of the automotive market, it could be wise to consider investing in quality auto stocks such as Continental Aktiengesellschaft (CTTAY), Mazda Motor Corporation (MZDAY), and Ituran Location and Control Ltd. (ITRN). These stocks have earned an A (Strong Buy) rating in our proprietary rating system.
According to Cox Automotive, with fewer selling days in April, volume dipped to 1.31 million units, down 3.3% compared to the prior year and 9.1% from March. Despite the shortfall, April's selling pace, estimated at 15.7 million, showed a slight uptick of 0.4% compared to last year and 1.1% compared to March.
Notably, April's pace is significant given that inventory levels were approximately 50% higher than a year ago, accompanied by more generous sales incentives. But the pace fell short of expectations. Nevertheless, with May historically being a strong month for new-vehicle sales, the market remains poised for its best year since 2019.
The Commerce Department recently reported that the core personal consumption expenditures price index (unchanged from February) rose 2.8% from a year ago in March, indicating that inflation remains sticky. Despite the high inflation rate, consumer spending increased by 0.8% for the month, as personal income increased by 0.5%.
Thus, higher prices and loan rates have deterred many potential buyers, with lingering uncertainty prompting some to postpone purchases. As we navigate through the remainder of the year, Cox Automotive reported that expectations for the new vehicle market center around steady, albeit modest, growth. The SEMA State of the Industry Report suggests that new vehicle sales are projected to exceed 16 million in 2024.
Looking ahead, the global automotive industry is expected to see substantial growth, climbing from $4.36 trillion in 2024 to $6.68 trillion by 2032, exhibiting a CAGR of 5.7%.
In addition, the industry’s focus on developing Electric Vehicles (EVs) further accelerates its overall growth prospects. The International Energy Agency (IEA) predicts that global electric vehicle sales will jump by more than 20% this year, reaching a total of 17 million units.
With that being said, let’s evaluate the fundamentals of the stocks mentioned above in detail:
Continental Aktiengesellschaft (CTTAY)
Headquartered in Hanover, Germany, CTTAY is a technology company that offers mobility solutions to the automotive sector globally. It operates through four sectors: Automotive; Tires; ContiTech; and Contract Manufacturing.
In terms of forward EV/Sales, CTTAY is trading at 0.40x, 66.3% lower than the industry average of 1.19x. Its forward EV/EBITDA multiple of 3.55 is 62.2% lower than the industry average of 9.40x. In addition, CTTAY’s forward Price/Sales ratio of 0.29 is 66.7% lower than the industry average of 0.88.
CTTAY’s sales increased 5.1% year-over-year to €41.42 billion ($44.58 billion) in the fiscal year that ended March 31, 2023. Its adjusted EBIT grew 31.6% from the year-ago value to €2.52 billion ($2.71 billion), while its net income increased significantly year-over-year to €1.16 billion ($1.24 billion). The company’s EPS stood at €5.78 compared to €0.33 in 2022.
Street expects CTTAY’s revenue and EPS to increase 0.4% and 9.2% year-over-year to $45.53 billion and $0.69, respectively, in the current year (ending December 2024). For the fiscal year 2025, its revenue is expected to increase 3.9% year-over-year to reach $47.32 billion, while its EPS estimate of $1.16 indicates an impressive 68.3% year-over-year growth.
On April 16, 2024, the company released its preliminary figures for the first quarter of 2024. CTTAY’s quarterly consolidated sales amounted to around €9.8 billion ($10.55 billion) compared to a consensus of €10 billion ($10.76 billion). Its adjusted EBIT margin is expected to be nearly 2% versus the consensus of 3.7%.
Looking ahead to fiscal 2024, the company anticipates consolidated sales between €41 billion ($44.12 billion) and €44 billion ($47.35 billion) and an adjusted EBIT margin to lie in the range of 6% to 7%.
Over the past three years, CTTAY’s revenue and EBIT have increased at CAGRs of 9.1% and 12.5%, respectively. Also, its tang book value has grown at a 12.3% CAGR over the same period.
CTTAY’s trailing-12-month CAPEX/Sales ratio of 5.13% is 67.9% higher than the 3.06% industry average. In addition, its asset turnover ratio of 1.09x compares to the industry average of 0.99x.
The stock has lost marginally over the past six months to close the last trading session at $6.62.
CTTAY’s solid prospects are reflected in its POWR Ratings. The stock has an overall A rating, which equates to a Strong Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
It has an A grade for Value and Stability and a B for Quality. Among the 61 stocks in the A-rated Auto Parts industry, it is ranked #5. Click here to see CTTAY's other ratings for Growth, Momentum, and Sentiment.
Mazda Motor Corporation (MZDAY)
Headquartered in Hiroshima, Japan, MZDAY manufactures and sells passenger cars and commercial vehicles globally. The company’s main offerings include four-wheeled vehicles, gasoline reciprocating engines, diesel engines, and automatic and manual automobile transmissions.
On April 25, 2024, MZDAY released its production and sales results for March 2024 and April 2023 through March 2024. Although the company’s export volume dipped in March owing to decreased shipments to North America and other regions, it jumped 8.9% year-over-year from April to March, favored by increased shipments to Europe and North America.
Also, its global sales volume decreased 7.7% year-over-year in March but increased 11.8% year-over-year for the twelve months, thanks to increased sales in the United States, Europe, Japan, and other regions.
On March 29, MZDAY and Panasonic's energy unit signed an agreement for the supply of cylindrical automotive lithium-ion batteries. This partnership stems from discussions initiated in June last year about a potential battery supply collaboration for electric vehicles. The deal is expected to support MZDAY's efforts to ramp up EV production, aligning with its ambitious ¥1.5 trillion ($9.9 billion) investment plan announced in late 2022.
In terms of forward EV/Sales, MZDAY is trading at 0.19x, 84.3% lower than the industry average of 1.19x. The stock’s forward EV/EBITDA of 2.43x is 74.2% lower than the industry average of 9.40x.
In the fiscal 2024 third quarter that ended December 31, 2023, MZDAY’s net sales increased 32.3% year-over-year to ¥3.57 trillion ($23.31 billion). Its operating income grew 82.9% from the year-ago value to ¥200.20 billion ($1.31 million). The company’s attributable net income came in at ¥165.49 billion ($1.08 billion) and ¥262.45 per share, representing a 59.8% year-over-year improvement.
Analysts expect MZDAY’s revenue to increase 6.3% from the prior year period to $8.09 billion in the first quarter (ending June 30, 2024). The consensus revenue estimate of $31.50 billion for the fiscal year 2024 indicates a 42.5% improvement year-over-year. Also, the company has surpassed the revenue estimates in three of the trailing four quarters.
Moreover, its revenue and EBITDA have grown at impressive CAGRs of 18.4% and 70.1%, respectively, over the past three years. Also, its total assets have increased at a 6.2% CAGR over the same period.
The stock’s trailing- 12-month ROCE and ROTA of 13.59% and 5.82% are 22.4% and 37.9% higher than the industry averages of 11.10% and 4.22%, respectively. Also, its asset turnover ratio of 1.40x compares to the 0.99x industry average.
Over the past year, the stock has gained 24.7% to close the last trading session at $5.55.
It is no surprise that MZDAY has an overall rating of A, which translates to a Strong Buy in our proprietary rating system. Also, it has an A grade for Value and a B for Growth, Stability, and Quality. Within the Auto & Vehicle Manufacturers industry, it is ranked first among 51 stocks.
Beyond what we’ve stated above, we’ve also rated MZDAY for Momentum and Sentiment. Get all MZDAY ratings here.
Ituran Location and Control Ltd. (ITRN)
ITRN is a location-based telematics services and machine-to-machine telematics products provider. The company, based in Azor, Israel, operates through the segments of Telematics Services and Telematics Products.
Earlier this year, on the back of strong financials, the company added $8 million to its dividend pool, representing a 60% increase from the prior quarter and a robust 167% rise over the eight quarters before that. ITRN’s four-year average dividend yield is 2.78%, while its annual dividend of $1.56 per share translates to a 6.01% yield on the current prices. Its dividend has grown at a 24.7% CAGR over the past three years.
In terms of trailing-12-month EV/Sales, ITRN is trading at 1.49x, 51.1% lower than the industry average of 3.05x. Its trailing-12-month EV/EBITDA and Price/Sales multiples of 5.48 and 1.62 are 69.4% and 44.1% lower than the industry averages of 17.89 and 2.90, respectively.
For the fiscal fourth quarter that ended December 31, 2023, ITRN’s revenues increased 3.8% year-over-year to $77.81 million. The company’s operating income increased 7.8% year-over-year to $16.50 million, while its gross profit grew 7.1% from the year-ago value to $38.40 million.
Also, net income attributable to the company stood at $12.02 million, up 25.6% year-over-year. Additionally, EPS attributable to the company’s stockholders came in at $0.60, representing a 27.6% increase from the prior-year quarter.
Analysts expect ITRN’s EPS to increase 6.1% year-over-year to $0.59 for the to-be-reported quarter that ended March 31, 2024. For 2024, its EPS is expected to register a 3.9% year-over-year growth, reaching $2.50. Additionally, the stock surpassed consensus EPS estimates in three out of the trailing four quarters, which is impressive.
Its revenue and EBITDA have grown at impressive CAGRs of 9.2% and 12.7%, respectively, over the past three years. Likewise, its EPS has improved significantly at a 46.2% CAGR over the same period.
The stock’s trailing-12-month levered FCF margin of 17.21% is 81.1% higher than the 9.50% industry average. Likewise, its trailing-12-month net income margin, ROCE, and ROTC of 15.04%, 30.06%, and 22.66% are substantially higher than the industry averages of 2.44%, 2.87%, and 2.27%, respectively.
ITRN’s shares have soared 25.1% over the past year to close the last trading session at $25.95.
ITRN’s POWR Ratings reflect this promising outlook. The stock has an overall rating of A, which equates to a Strong Buy in our POWR Ratings system. It also has an A grade for Quality and a B for Value, Stability, and Sentiment. Out of 61 stocks in the Auto Parts industry, it is ranked first.
Click here to see the additional POWR Ratings for ITRN (Growth and Momentum).
What To Do Next?
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CTTAY shares were trading at $6.71 per share on Monday afternoon, up $0.09 (+1.28%). Year-to-date, CTTAY has declined -18.66%, versus a 8.65% rise in the benchmark S&P 500 index during the same period.
About the Author: Shweta Kumari
Shweta's profound interest in financial research and quantitative analysis led her to pursue a career as an investment analyst. She uses her knowledge to help retail investors make educated investment decisions.
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