Monday, August 25, 2014

This Weeks Free Stock Pick - Auto Parts

Visteon Corporation (VC) delivered strong results and provided bullish guidance for 2014 and 2015, leading analysts to revise their estimates upwards. Positive earnings momentum sent the stock back to Zacks rank #1 (Strong Buy) earlier this month.

About the Company

Visteon is a leading global automotive supplier of climate, electronics and interiors products for vehicle manufacturers. It serves original equipment vehicle manufacturers with its technical, manufacturing, sales and service facilities located in 29 countries.

It has corporate offices in Van Buren Township, Michigan; Shanghai, China; and Chelmsford, UK and employs about 24,000 people worldwide.

The company has been transforming from a US centric company with only one major customer to a predominantly Asia-based, multi-customer global enterprise.

Excellent Results and Guidance

On August 6, Visteon reported its Q2 2014 results. Sales for the quarter totaled $1.78 billion, up 11% from the same quarter last year. Adjusted EPS of $1.76 per share was much better than consensus.

Adjusted EBITDA excluding discontinued operations was $175 million, compared with $149 million for the same period a year earlier. The balance sheet position continued to be strong with global cash balances totaling $1.4 billion at the end of the quarter.

Hyundai-Kia accounted for approximately 39% of Q2 sales and Ford accounted for 30%. Among regions, Asia accounted for 51% of sales, Europe 27%, and Americas 22%.

The company now expects 2014 sales of $7.6 billion and adjusted earnings in the range of $2.98 to $3.62 per share. The company also provided preliminary guidance for 2015, which was better than expectations.

Visteon completed the acquisition of the electronics business of Johnson Controls (JCI) in July. The business acquired provides automakers with advanced driver information, infotainment, connectivity and body electronics products and makes Visteon one of the world's three largest suppliers of vehicle cockpit electronics. The company expects that future synergies from JCI integration will drive sales growth and margin expansion.

Business Transformation to be completed soon

The company is nearing the completion of its multi-year restructuring/transformation. After exiting its Interiors business, the company will be comprised of two high-growth / margin businesses—Automotive Climate and Cockpit Electronics

Solid Industry Outlook

Per Zacks Auto Industry Outlook, a strong pent-up demand due to aging vehicles on the U.S. roads along with falling unemployment rate and easier financing have been the key factors in driving the auto sales in the US..

Asian countries, especially China and India, are expected to account for a large portion of growth in the auto industry over the next five to seven years due to their rapidly growing economies. With its strong presence in Asia, VC will definitely benefit from the surging demand for automobiles in that region.

Further recent innovations in consumer electronics technologies will provide significant opportunities for automotive electronics suppliers.

Estimates Moving Upwards

After strong results and updated guidance, analysts have increased their earnings estimates for VC. Zacks consensus estimates for the current and next year are now $3.52 per share and $5.26 per share respectively, up from $3.18 per share and $4.55 per share, 30 days ago.

The Bottom Line

Highly diversified sales footprint (by products, regions as well as customers), offerings across all major cockpit electronics products and continued investments will help VC gain market share in its space and coninue its outperformance.

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