April 29th, 2016
When back on March 29 I gave a thumbs up to Autoliv (ALV) in a post on my subscription JubakAM.com site as a pick for the increasing automaker emphasis upon safety and driver-assisted or autonomous driving systems, I said I’d like to wait until after the company’s April 29 earnings results. I didn’t want to pick up these shares just as the auto industry reached peak sales and headed into one of its periodic summer slowdowns.
Well, apparently I wasn’t the only one waiting for earnings. Today, after announcing earnings before the open, shares of Autoliv jumped 6.95% as the company blew out first quarter earnings and then raised guidance for the second quarter of 2016. In a market without much in the way of growth to cheer about a company that beats analyst estimates of $1.66 a share by 16 cents a share (earnings were 16.9% better than in the first quarter of 2015) and that beats projected revenue by $90 million deserves a rally–especially when the company then posts positive guidance for the second quarter. Revenue in the second quarter will increase by around 11% with organic sales growth for the full year to exceed 7%. (That 11% guidance is up from earlier guidance for 2% revenue growth.) Adjusted operating margin will be 9% for the full year. (Organic growth is growth before the effect of acquisitions.)
Sure, I now wish I’d bought these shares before earnings but I’m not going to let a short-term disappointment on timing stand in the way of a owning part of a long term growth story. I’ll be adding shares of Autoliv to my Jubak Picks portfolio on Monday, May 2.
Let me take a few items from that March 29 post–a Sector Monday exclusive to JubakAM.com–to give you a little background on why I’m picking Autoliv. (For the complete story subscribe at JubakAM.com for $199 a year and see my JubakAM.com post http://jubakam.com/2016/03/autoliv-another-auto-technology-stock-for-the-age-of-autonomous-vehicles/ )
Autoliv dominates the airbag auto safety market–especially after the massive recalls faced by Japan’s Takata as a result of that company’s airbag inflators shooting shrapnel at drivers and passengers–with a 41% market share in 2015. The story that isn’t priced in to the shares, even after today’s move up, is the company’s business providing radar, vision sensors and other systems for driver assisted braking and driving systems–and to technologies that will, ultimately, lead to autonomous cars. Current models using Autoliv components run the range from the Chevrolet Malibu to the Mercedes E Class. The combination of radar and vision technologies is one that especially appeals to consumers with surveys showing a preference for cars that include both radar and cameras in their safety systems. This new class of safety equipment could generate more than $3 billion in electronics sales annually by the end of 2019. That’s a hefty hunk of growth for a company that saw sales of $9.2 billion last year. Wells Fargo projects 34% compounded annual growth for revenue from active safety systems at Autoliv and 65% compounded annual growth for earnings from this segment.
Autoliv fits in the auto technology theme I laid out at the MoneyShow in Orlando on March 5, although I did not mention the stock in that presentation. You can find the slides from that presentation on this free site at http://jubakpicks-1565237904.us-west-2.elb.amazonaws.com/2016/03/08/cars-the-next-profit-frontier-in-technology/
Today’s earnings and revenue figures re-enforce that picture. Sales growth by segment: airbags 12.2%; seat belts 1.6%; passive safety electronics 17.5%, and active safety (the driver assisted segment) 50.7%. Airbags are by far the company’s biggest segment by revenue at $1.32 billion. Active safety is the smallest at $190 million. Gross profit margin improved by 1.1 percentage point to 20.6%. Adjusted operating margin grew by 20 basis pints to 9.1%.
Autoliv is still not especially expensive. The price to sales ratio is just 1.15–reasonable for the company’s growth rate. The trailing 12-month price-to-earnings ratio at today’s close is 17.7. The shares pay a 1.9% dividend with a May 16 ex-dividend date.
The shares have traded in a 52-week range of $95 to $132.19.
I’m adding these to my Jubak Picks portfolio with a target price of $149 by the end of 2016.