The auto industry is thriving due to strong customer demand, rapid adoption of electric vehicles (EVs), technological advancements, use of innovative auto components, government incentives, and improved global supply chains. Furthermore, the anticipated interest rate cuts this year will likely propel the industry further.
Given the industry’s solid growth prospects, investors could consider buying fundamentally strong auto stocks Stellantis N.V. (STLA), Mercedes-Benz Group AG (MBGAF), and Ituran Location and Control Ltd. (ITRN).
Before delving deeper into their fundamentals, let’s discuss what’s happening in the auto industry.
Despite challenges such as sticky inflation, higher car repair expenses and insurance costs, the automobile sector performed better last year than in 2022. In February, new vehicle sales in the U.S. reached 1.26 million units, up 9.6% from February 2023. Moreover, global sales of light vehicles are expected to reach 89.1 million units this year, indicating a 3% increase from last year.
Manufacturer promotions, rising disposable incomes, expected interest rate cuts, and technological advancements are expected to benefit the industry further. The global automotive industry is projected to grow at a 6.8% CAGR, reaching $6.86 trillion by 2033.
Also, the auto industry looks poised for further growth due to the growing adoption of EVs. More people are opting for electric cars due to environmental concerns, expanding public charging infrastructure, price cuts, and government subsidies. BloombergNEF predicts a 21% rise in global passenger EV sales, reaching 16.7 million units in 2024, with 70% being fully electric vehicles.
Moreover, the use of advanced electronic components, infotainment systems, connectivity features, enhanced safety features, and high-performance brake systems is boosting the demand for advanced auto parts. The global auto parts market is expected to grow at a CAGR of 6.8% to reach $1.10 trillion by 2030.
Considering these conducive trends, let’s analyze the fundamental aspects of the auto stocks mentioned above.
Stellantis N.V. (STLA)
Headquartered in Hoofddorp, the Netherlands, STLA designs, engineers, manufactures, distributes, and sells automobiles and light commercial vehicles, engines, transmission systems, metallurgical products, mobility services, and production systems worldwide.
On March 6, 2024, STLA announced a record investment of €5.6 billion ($6.10 billion) in South America. This investment will support over 40 new products, decarbonization technologies, and business opportunities, reaffirming its commitment to regional growth and carbon neutrality goals by 2038.
This investment marks the largest in the region's automotive industry, demonstrating STLA’s leadership and strategic focus on clean, safe, and affordable mobility solutions in Brazil and South America.
On February 26, 2024, STLA announced a multi-billion-euro frame agreement with Ayvens for up to 500,000 vehicles, supporting sustainable mobility choices across Europe and aligning with companies' strategic plans for energy transition and customer-centric innovations.
Carlos Tavares, CEO at STLA, said, “This collaboration empowers both current and prospective Stellantis brand customers to experience our latest innovations first-hand, from advanced propulsion to seamless connectivity and unparalleled comfort. Their clients will have the ultimate test drive as we pave the way to a decarbonized future.”
In terms of the trailing-12-month EBIT margin, STLA’s 12.12% is 60.1% higher than the 7.57% industry average. Likewise, its 9.81% trailing-12-month net income margin is 103.4% higher than the 4.82% industry average. Likewise, its 24.20% trailing-12-month Return on Common Equity is 111.9% higher than the 11.42% industry average.
STLA’s net revenues for the fiscal year ended December 31, 2023, increased 5.5% year-over-year to €189.54 billion ($206.35 billion). Its net profit increased 11% year-over-year to €18.63 billion ($20.28 billion). Its adjusted operating income rose 1.4% year-over-year to €24.34 billion ($26.50 billion). The company’s adjusted EPS came in at €6.42, representing an increase of 7.2% year-over-year.
Analysts expect STLA’s revenue for the quarter ending September 30, 2024, to increase 8.4% year-over-year to $51.77 billion. Its EPS for fiscal 2025 is expected to increase 2.4% year-over-year to $5.75. Over the past year, the stock has gained 68.9% to close the last trading session at $28.50.
STLA’s strong fundamentals are reflected in its POWR Ratings. It has an overall rating of B, which translates to a Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
It is ranked #12 out of 53 stocks in the Auto & Vehicle Manufacturers industry. It has an A grade for Value and a B for Stability and Quality. To see STLA’s Growth, Momentum, and Sentiment ratings, click here.
Mercedes-Benz Group AG (MBGAF)
Headquartered in Stuttgart, Germany, MBGAF is an automotive company operating in Germany and internationally. The company develops, manufactures, and sells premium and luxury cars and vans under the Mercedes-AMG, Mercedes-Benz, Mercedes-Maybach, and Mercedes-EQ brands, as well as related spare parts and accessories.
On February 9, 2024, MBGAF announced the official commencement of IONNA, a joint venture with other automakers, to deploy at least 30,000 high-powered EV charging stations across North America, led by Seth Cutler as CEO, aiming for a seamless, customer-focused charging experience integrated with renewable energy sources.
On December 1, 2023, MBGAF and BMW announced a 50:50 joint venture in China to operate a high-power charging network with at least 1,000 stations and 7,000 charging piles by 2026, aiming to deliver fast, reliable, and sustainable charging solutions for Chinese customers, including exclusive features like plug & charge and online reservations.
In terms of the trailing-12-month EBITDA margin, MBGAF’s 15.72% is 44.9% higher than the 10.85% industry average. Likewise, its 5.42% trailing-12-month Return on Total Assets is 28% higher than the 4.24% industry average. Likewise, its 16.10% trailing-12-month Return on Common Equity is 40.9% higher than the 11.42% industry average.
MBGAF’s revenues for the fiscal year ended December 31, 2023, increased 2.1% year-over-year to €153.22 billion ($166.81 billion). Likewise, its gross profit came in at €34.38 billion ($37.43 billion), up 1.1% from the year-ago value.
For the same quarter, its adjusted EBIT stood at €20 billion ($21.77 billion). Its net profit thereof attributable to shareholders of MBGAF and EPS came in at €14.26 billion ($15.53 billion) and €13.46, respectively.
For the quarter ending September 30, 2024, MBGAF’s revenue is expected to increase 6.9% year-over-year to $41.99 billion. It surpassed the consensus EPS estimates in three of the trailing four quarters. The stock has gained 15.4% year-to-date to close the last trading session at $79.73.
MBGAF’s solid prospects are reflected in its POWR Ratings. It has an overall rating of A, which translates to a Strong Buy in our proprietary rating system.
It has a B grade for Growth, Value, Momentum, Stability, and Quality. Within the Auto & Vehicle Manufacturers industry, it is ranked #4. Beyond the grades mentioned above, we have also rated MBGAF for Sentiment. Get all ratings here.
Ituran Location and Control Ltd. (ITRN)
Headquartered in Azor, Israel, ITRN offers location-based telematics services and machine-to-machine telematics products. It has two segments: Telematics Services and Telematics Products.
In terms of the trailing-12-month net income margin, ITRN's 15.04% is 461.4% higher than the 2.68% industry average. Likewise, its 18.31% trailing-12-month levered FCF margin is 103.1% higher than the industry average of 9.01%. Furthermore, the stock’s 1.05x trailing-12-month asset turnover ratio is 72.9% higher than the industry average of 0.61x.
ITRN's revenues for the fiscal year ended December 31, 2023, increased 9.2% year-over-year to $319.98 million. Its gross profit rose 11.3% over the prior-year quarter to $153.16 million. Its net cash provided by operating activities increased 71.1% year-over-year to $77.22 million.
The company’s operating income increased 12.2% year-over-year to $65.96 million. Its net income attributable to the company rose 29.7% year-over-year to $48.14 million. Also, its EPS came in at $2.40, representing an increase of 31.9% year-over-year.
Street expects ITRN's EPS for the quarter ending March 31, 2024, to increase 6.1% year-over-year to $0.59. It surpassed the Street EPS estimates in three of the trailing four quarters. Over the past year, the stock has gained 21.4% to close the last trading session at $27.47.
ITRN's POWR Ratings reflect its positive outlook. It has an overall rating of A, equating to a Strong Buy in our proprietary rating system.
Within the A-rated Auto Parts industry, it is ranked #3 out of 62 stocks. It has an A grade for Quality and a B for Value and Stability. Click here to see ITRN's Growth, Momentum, and Sentiment ratings.
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STLA shares were trading at $28.62 per share on Monday morning, up $0.12 (+0.42%). Year-to-date, STLA has gained 22.73%, versus a 8.34% rise in the benchmark S&P 500 index during the same period.
About the Author: Abhishek Bhuyan
Abhishek embarked on his professional journey as a financial journalist due to his keen interest in discerning the fundamental factors that influence the future performance of financial instruments.
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