Vehicle sales have experienced solid growth last year, raising the prospects of the auto sector. Therefore, investors could consider adding top auto stocks Volvo AB ADR (VLVLY), Cars.com Inc. (CARS), and CarParts.com, Inc. (PRTS), which are expected to soar in 2024. They also boast robust profit margins.
Global car sales saw continuous growth in the first three quarters of 2023, with expansion observed in all major car markets worldwide. Moreover, in the United States, new vehicle sales rose 8.8% year-over-year to 1,242,376 units in November, indicating robust demand in the industry.
The global car rental market growth is propelled by rising tourism, smartphone-based bookings, and advanced technology adoption by operators competing on pricing and services. Factors like location, fleet size, and marketing strategies drive the market's competitiveness.
The global car rental market is anticipated to expand at a CAGR of 12.2% to reach $278.03 billion by 2030.
Besides, smart manufacturing in the automotive industry, utilizing digital twins, IoT, AI-driven supply chains, and machine learning, enhances performance and predictive maintenance.
Furthermore, the automotive aftermarket market experiences rising demand driven by drivers seeking enhanced vehicle performance, facilitated by digitization and online platforms. Opportunities emerge from technological advancements in propulsion and increasing consumer preference for IoT and digitization trends.
The global auto parts market is anticipated to expand at a CAGR of 6.8% to reach $1.10 trillion by 2030.
Considering these conducive trends, let’s look at the fundamentals of the three featured auto stocks.
Volvo AB ADR (VLVLY)
Based in Gothenburg, Sweden, VLVLY is a global manufacturer of trucks, buses, construction equipment, and engines, offering a diverse range of products under brands like Volvo, Renault Trucks, and Mack. The company also provides services such as financing and maintenance and has strategic partnerships for autonomous trucks and battery development.
VLVLY’s trailing-12-month EBIT margin of 11.72% is 19.5% higher than the industry average of 9.81%. Its 4.17% trailing-12-month CAPEX/Sales is 40.1% higher than the 2.97% industry average.
On December 14, 2023, VLVLY sold the ABG paver business to Ammann Group, impacting Q4 2023 operating income by SEK650 million ($64.07 million). The deal includes the ABG production center in Germany, with about 400 employees moving to Ammann.
The transaction aims to preserve ABG's legacy, which is set to close in the first half of 2024, pending regulatory approvals.
In the fiscal third quarter, which ended September 29, 2023, VLVLY’s net sales and gross income grew 15.2% and 33.1% year-over-year to SEK132.41 billion ($13.05 million) and SEK36.38 billion ($3.59 billion). The company reported an adjusted operating income of SEK19.11 billion ($1.88 billion), up 61% from the prior-year quarter.
Moreover, its EPS increased 63.4% from the previous year's quarter to SEK6.93.
Street expects VLVLY’s revenue and EPS to grow 14.5% and 67.4% year-over-year to $52.80 billion and $2.90, respectively, for the fiscal year ended December 2023. The company surpassed the revenue estimates in three of the trailing four quarters, which is impressive.
VLVLY’s shares have gained 45.4% over the past year and 27.6% over the past nine months to close the last trading session at $25.41.
VLVLY’s POWR Ratings reflect its robust prospects. The stock has an overall rating of A, equating to a Strong Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.
VLVLY has an A grade for Stability and a B for Growth and Quality. Within the Auto & Vehicle Manufacturers industry, it is ranked #7 among 52 stocks.
In addition to the POWR Ratings stated above, one can access VLVLY’s additional Value, Momentum, and Sentiment ratings here.
Cars.com Inc. (CARS)
CARS operates as a digital marketplace connecting car shoppers with sellers, providing tools for financing and digital solutions. Serving 19,506 dealers nationwide, it offers advertising and media services to the automotive industry.
CARS’ trailing-12-month gross profit margin of 67.88% is 38.8% higher than the industry average of 48.90%. Its 23.20% trailing-12-month EBITDA margin is 22.9% higher than the 18.88% industry average.
On November 2, 2023, CARS acquired Canadian automotive tech provider D2C Media Inc. for CAD105 million ($79.05 million) in cash, expanding its reach in Canada. The deal was finalized on November 1, 2023, and positions Cars Commerce as a prominent digital solutions provider in Canada, serving 1,000 dealer customers and enhancing growth.
The acquisition aims to deepen OEM relationships and tap into new markets for accelerated expansion.
During the third quarter, which ended September 30, 2023, CARS’ total revenue amounted to $174.33 million, up 5.9% from the prior-year quarter. The company's net income and EPS amounted to $4.49 million and $0.07, compared to its previous-year quarter’s net loss and loss per share of $2.94 million and $0.04, respectively. It reported an adjusted EBITDA of $49.49 million.
The company expects the revenue to range between $177 million and $179 million, with an expected adjusted EBITDA margin falling between 29.5% and 30.5% for the fourth quarter.
Analysts expect CARS’ revenue and EPS to grow 7.8% and 22.1% year-over-year to $180.11 million and $0.53 for the first quarter ending March 2024, respectively. The company surpassed the revenue estimates in three of the trailing four quarters.
The stock has gained 33.4% over the past year and 10.2% over the three months to close the last trading session at $18.37.
CARS’ optimistic outlook is reflected in its POWR Ratings. The stock has an overall rating of A, equating to a Strong Buy in our proprietary rating system.
It has a B grade for Value and Sentiment. Within the Auto Dealers & Rentals industry, it is ranked #2 of 20 stocks.
To see CARS’ additional POWR Ratings for Growth, Momentum, Stability, and Quality, click here.
CarParts.com, Inc. (PRTS)
PRTS is an online provider of aftermarket auto parts in the United States and the Philippines, offering replacement and performance parts through various e-commerce websites. The company serves individual consumers and supplies parts to repair shops and distributors.
PRTS’ trailing-12-month levered FCF margin of 9.08% is 72.9% higher than the industry average of 5.25%. Its 2.54x trailing-12-month asset turnover ratio is 155.4% higher than the 0.99x industry average.
On November 28, 2023, PRTS launched an enhanced content strategy featuring the in the Garage Podcast with car culture discussions and DIY advice.
The initiative includes a user-friendly blog and educational videos, beginning with the 2009-2014 Ford F-150, aiming to simplify the automotive maintenance process and strengthen customer engagement.
In the third quarter ended September 30, 2023, PRTS’ net sales increased 1.2% year-over-year to $166.86 million. The company reported gross profit and adjusted EBITDA of $54.82 million and $3.05 million, respectively. As of September 30, 2023, its total assets amounted to $270.82 million, compared to its total assets of $238.40 million as of December 31, 2022.
PRTS’ revenue is expected to grow 4% year-over-year to $700.73 million for the fiscal year ending December 2024. Its EPS is expected to improve by 18.2% for the same fiscal year.
PRTS’ shares increased 2.9% intraday to close the last trading session at $3.25.
PRTS’ POWR Ratings reflect this sound outlook. The stock has an overall rating of B, equating to a Buy in our proprietary rating system.
The stock has an A grade for Sentiment and a B for Value and Quality. Within the A-rated Auto Parts industry, it is ranked #26 out of 61 stocks.
Click here for PRTS’ additional Growth, Momentum, and Stability ratings.
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.
VLVLY shares were trading at $24.76 per share on Wednesday afternoon, down $0.65 (-2.54%). Year-to-date, VLVLY has declined -4.57%, versus a -1.15% rise in the benchmark S&P 500 index during the same period.
About the Author: Kritika Sarmah
Her interest in risky instruments and passion for writing made Kritika an analyst and financial journalist. She earned her bachelor's degree in commerce and is currently pursuing the CFA program. With her fundamental approach, she aims to help investors identify untapped investment opportunities.
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