Rising disposable incomes, flexible financing options, rapid urbanization, and evolving mobility preferences have mainly influenced consumer demand for vehicles. Further, government incentives and subsidies, especially for clean energy vehicles, and continued innovation in areas such as EVs, autonomous driving, and connected cars will drive the auto industry’s growth.
Given the industry’s bright prospects, fundamentally sound auto stocks Oshkosh Corporation (OSK) and Gates Industrial Corporation plc (GTES) could be ideal additions to your portfolio, while it seems wise to wait for a better entry point in Renault SA (RNLSY).
According to the Cox Automotive team’s forecast, new vehicle sales in the U.S. saw a surge in February, driven by warmer weather and a rise in consumer sentiment as measured by Morning Consult. The seasonally adjusted annual sales rate (SAAR) for new vehicles last month is forecast to grow from January and finish near 15.4 million.
Total new-vehicle sales for February are estimated to be around 1.25 million units, exceeding the forecast of 1.22 million units and marking a 9.6% increase year-over-year.
As per the Spherical Insights report, the global automotive industry market is expected to grow at a CAGR of 6.8%, resulting in a market volume of $6.86 trillion by 2033. Rising demand for commercial vehicles amid rapid population growth, urbanization, and increasing infrastructure spending is the primary driver of the market growth.
The electric vehicles (EVs) buzz is expected to continue in 2024, with a projected revenue of $623.30 billion. Further, the market is expected to reach a volume of $906.70 billion by 2028, growing at a CAGR of 9.8% during the forecast period.
The accelerated pace of the automotive market has fuelled the auto parts and accessories market. Economic expansion, technological advancements, an aging vehicle population, customization preferences, increasing disposable income, and growth of e-commerce are key factors influencing market expansion.
The auto parts and accessories market is projected to grow at a CAGR of 5.7% from 2024 to 2030.
Considering these factors, investors could add fundamentally sound auto stocks OSK and GTES to their portfolio, while it seems prudent to wait for a better entry point in RNLSY.
Stock to Watch:
Renault SA (RNLSY)
Based in Boulogne-Billancourt, France, RNLSY is engaged in the design, manufacture, sale, repair, maintenance, and leasing of motor vehicles worldwide. The company also offers design and production of parts and equipment used for manufacturing and operating vehicles. It operates in Automotive; Sale Financing; and Mobility Services segments.
On February 14, 2024, RNLSY proposed a dividend for the fiscal year 2023 of €1.85 ($2.01) per share, up €1.60 ($1.74) per share from the last year. The dividend will be paid fully in cash and will be submitted for approval at the Annual General Meeting on May 16, 2024. The ex-dividend date is scheduled on May 22, 2024, and the payment date on May 24, 2024.
In the year 2024, RNLSY is set for seven new vehicle launches, including two new all-electric vehicles with Scenic E-TECH electric, two new hybrid vehicles in Europe, including Rafale E-TECH, New Renault Master (ICE and all-electric versions), and two new vehicles in markets outside Europe: Kardian and a Renault Korea Motors vehicle.
RNLSY’s trailing-12-month EBIT margin of 7.66% is 1.4% higher than the industry average of 7.55%. But, the stock’s trailing-12-month net income margin of 4.20% is 13.7% lower than the industry average of 4.86%. Also, its trailing profit margin of 20.81% is 41.8% lower than the 35.77% industry average.
In terms of forward EV/Sales, RNLSY is trading at 1.06x, 13.2% lower than the industry average of 1.23x. Likewise, the stock’s forward EV/EBITDA multiple of 7.96 is 16.4% lower than the industry average of 9.53.
For the fiscal year that ended December 31, 2023, RNLSY’s group revenue increased 13.1% year-over-year to €52.38 billion ($57 billion). Its operating income grew 13.4% year-over-year to €2.48 billion ($2.70 billion). The company’s net income came in at €2.31 billion ($2.52 billion), against a net loss of €716 million ($779.31 million) from the previous year.
In addition, the company’s free cash flow increased 42.7% from the previous year to €3.02 billion ($3.29 billion).
As per the company’s outlook for fiscal 2024, RNLSY expects a group operating margin of more than 7.5%, and its free cash flow is estimated to exceed €2.50 billion ($2.72 billion).
Analysts expect RNLSY’s revenue for the first quarter (ending March 2024) to increase 1.7% year-over-year to $12.82 billion. For the fiscal year ending December 2024, the company’s revenue is expected to grow 5.2% year-over-year to $59.09 billion.
The stock has surged 16.1% over the past six months and 23% over the past year to close the last trading session at $9.30.
RNLSY’s mixed outlook is reflected in its POWR Ratings. The stock has an overall rating of C, which translates to a Neutral in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, each weighted to an optimal degree.
The stock has a C grade for Growth, Sentiment, and Quality. Within the Auto & Vehicle Manufacturers industry, RNLSY is ranked #23 out of 53 stocks.
Click here to access additional ratings of RNLSY (Value, Stability, and Momentum).
Stocks to Buy:
Oshkosh Corporation (OSK)
OSK offers purpose-built vehicles and equipment. It operates through three segments: Access; Defense; and Vocational. The company designs and manufactures aerial work platforms and telehandlers for use in construction, industrial, and maintenance applications and offers financing and leasing solutions.
On February 29, 2024, OSK announced an investment in Eatron® Technologies, a pioneering developer of Artificial Intelligence (AI) powered Battery Management Software (BMS). OSK’s investment in Eatron underpins its vision to utilize advanced analytics and predictive modeling for lithium-ion batteries to manage its wide range of electric vehicles.
“The investment in Eatron Technologies is part of our broader strategy to collaborate with advanced technology companies to accelerate bringing best in class innovation to our customers,” said John Pfeifer, president and chief executive officer at OSK.
On November 27, 2023, OSK announced that the U.S. Army Contracting Command – Detroit Arsenal (ACC-DTA) awarded a production contract for the Medium Equipment Trailer (MET). Under the deal, OSK is required to produce an estimated 557 trailers in the five-year Indefinite Delivery/Indefinite Quantity (IDIQ) contract, including the option for two additional years.
OSK’s trailing-12-month net income margin of 6.19% is 6.5% higher than the 5.81% industry average. Also, the stock’s trailing-12-month ROCE and ROTC of 17.36% and 12.32% are 44.7% and 75.9% higher than the respective industry averages of 12% and 7%.
In terms of forward non-GAAP P/E, OSK is trading at 11.28x, 38.7% lower than the industry average of 15.67x. Likewise, the stock’s forward EV/Sales multiple of 0.83 is 53.3% lower than the industry average of 1.78. Further, its forward Price/Sales of 0.74x is 49.1% lower than the industry average of 1.45x.
For the fourth quarter that ended December 31, 2023, OSK’s net sales grew 11.9% year-over-year to $2.47 billion. Its adjusted consolidated operating income increased 54.2% from the year-ago value to $239.90 million. The company’s adjusted net income and adjusted EPS came in at $169.4 million and $2.56, up 57.7% and 57% year-over-year, respectively.
In addition, the company’s total assets were $9.13 billion as of December 31, 2023, compared to total assets of $7.73 billion as of December 31, 2022.
As per the fiscal year 2024 outlook, OSK estimates its EPS to be in the range of $9.45, and its adjusted EPS is expected to be in the range of $10.25, with projected net sales of nearly $10.40 billion.
Analysts expect OSK’s revenue and EPS for the first quarter (ending March 2024) to grow 9.7% and 41.2% year-over-year to $2.49 billion and $2.24, respectively. Further, the company has surpassed the consensus revenue and EPS estimates in each of the trailing four quarters, which is impressive.
Over the past six months, OSK’s stock has gained 18.1% and 45.1% over the past year to close the last trading session at $116.40.
OSK’s POWR Ratings reflect its bright prospects. The stock has an overall grade of B, translating to a Buy in our proprietary rating system.
OSK has a B grade for Value and Momentum. It is ranked #15 among 53 stocks within the Auto & Vehicle Manufacturers industry.
To see the other ratings of OSK for Sentiment, Growth, Quality, and Stability, click here.
Gates Industrial Corporation plc (GTES)
GTES manufactures and sells engineered power transmission and fluid power solutions internationally. The company operates in two segments: Power Transmission and Fluid Power. It offers synchronous or asynchronous belts, including V-belts, CVT belts, and Micro-V belts.
On February 20, 2024, GTES launched the Clean Master Plus hose platform, the newest addition to GTES’ hose lineup, built for high-pressure applications in demanding industrial environments.
This next-generation hose construction shines for being 22% lighter and 50% more flexible on average compared to existing 6,000 psi hoses, and it improves ergonomics and safety along with reducing worker fatigue while also increasing productivity.
In terms of forward non-GAAP P/E, GTES is trading at 12.18x, 33.8% lower than the industry average of 18.41x. The stock’s forward EV/EBITDA multiple of 8.81 is 23.2% lower than the industry average of 23.23. In addition, its forward Price/Sales of 1.27x is 12.8% lower than the industry average of 1.45x.
During the fourth quarter that ended on December 30, 2023, GTES reported net sales of $863.30 million. Its gross profit grew 8.9% from the year-ago value to $337.70 million. The company’s adjusted net income was $104.70 million, or $0.39 per share, up 47% and 56% from the prior year’s quarter, respectively.
Furthermore, GTES’ adjusted EBITDA rose 11.9% year-over-year to $185.80 million. The company’s cash and cash equivalents stood at $720.60 million as of December 30, 2023, versus $578.40 million as of December 31, 2022.
The company announced its guidance for fiscal year 2024, expecting core revenue growth in the range of (3%) to +1% year-over-year. Its adjusted EBITDA is expected to be $725 million to $785 million, and adjusted EPS is expected to range between $1.28 and $1.43.
Street expects GTES’ EPS for the third quarter (ending September 2024) to increase 3.9% year-over-year to $0.36, and its revenue is expected to grow 2.1% year-over-year to $891.39 million for the same quarter. Moreover, the company has surpassed the consensus EPS estimates in three of the trailing four quarters.
Shares of GTES have gained 46.5% over the past six months and 29.9% over the past year to close the last trading session at $17.14.
GTES sound fundamentals are reflected in its POWR Ratings. The stock has an overall rating of A, which translates to a Strong Buy in our proprietary rating system.
GTES has an A grade for Sentiment and a B grade for Growth, Value, and Quality. It is ranked #4 among 62 stocks in the A-rated Auto Parts industry.
In addition to the POWR Ratings we’ve stated above, we also have GTES ratings for Momentum and Stability. Get all GTES ratings here.
What To Do Next?
43 year investment veteran, Steve Reitmeister, has just released his 2024 market outlook along with trading plan and top 11 picks for the year ahead.
RNLSY shares were unchanged in premarket trading Tuesday. Year-to-date, RNLSY has gained 14.67%, versus a 7.57% rise in the benchmark S&P 500 index during the same period.
About the Author: Mangeet Kaur Bouns
Mangeet’s keen interest in the stock market led her to become an investment researcher and financial journalist. Using her fundamental approach to analyzing stocks, Mangeet’s looks to help retail investors understand the underlying factors before making investment decisions.
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