The automotive sector suffered a major setback amid the COVID-19 pandemic as the global production of vehicles plunged. In fact, new car production enabled with the latest technologies continues to be impacted by the global semiconductor chip shortage. This has led to an increase in demand for auto parts because consumers are extending the use of their old cars or buying used cars, in lieu of purchasing brand new vehicles.
Most people are still wary of using mass transportation services due to public health concerns. This is driving the demand for personal cars. And because old cars are meeting the demand for private transportation, the auto-parts industry is benefiting. According to Grand View Research, the global automotive aftermarket is expected to reach $529.25 billion by 2028, growing at a 3.8% CAGR of 3.8%.
Consequently, we think it is wise to now buy the shares of auto parts companies Bridgestone Corporation (BRDCY), LKQ Corporation (LKQ), Gates Industrial Corporation plc (GTES), and Standard Motor Products, Inc. (SMP). They are well-positioned to take advantage of industry tailwinds based on their solid financials.
Bridgestone Corporation (BRDCY)
Headquartered in Tokyo, BRDCY is one of the world’s top manufacturers of tire and other rubber products, such as industrial materials and sporting goods. The company operates through two segments: tires and diversified products. Its diversified products segment provides chemical products, such as automobile related parts, urethane foam and related goods.
BRDCY’s 756.89 billion Yen ($6.91 billion) in revenue for the first quarter, ended March 31, 2021, represents a 7.2% year-over-year rise. The company’s net profit has increased 1,208.7% year-over-year to 287.65 billion Yen ($2.63 billion). Also, its EPS increased 1,365% year-over-year to 404.48 Yen ($3.69). Analysts expect BRDCY’s annual revenue to increase 344.9% year-over-year to $29.05 billion.
On April 26, 2021, BRDCY announced that its Bridgestone Mining Solutions Australia Pty. Ltd., had agreed to acquire Otraco International Pty Ltd from Downer EDI Limited. The acquisition is expected to help accelerate the company’s expansion in key markets, including Australia, Chile and South Africa. The stock has gained 41.8% over the past nine months to close yesterday’s trading session at $22.51.
It’s no surprise that BRDCY has an overall A rating, which equates to Strong Buy in our POWR Ratings system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
The stock has an A grade for Quality, and a B grade for Momentum, Growth, Stability. Click here to see BRDCY’s rating for Value and Sentiment also.
BRDCY is ranked #7 of 66 stocks in the B-rated Auto Parts industry.
LKQ Corporation (LKQ)
LKQ distributes replacement parts, components, and systems used to repair and maintain vehicles. The company’s offerings include bumper covers, automotive body panels, lights, and automotive glass products, such as windshields. It operates through three segments: North America; Europe; and Specialty.
For the first quarter, ended March 31, 2021, LKQ’s revenue came in at $3.17 billion, representing a 5.7% year-over year rise. The company’s operating income increased 53.6% year-over-year to $371.45 million and its net income for the quarter was $265.91 million, up 83.2% year-over-year. Its adjusted EPS came in at $0.94, which represents a 64.9% increase from the prior-year quarter.
For the current quarter, ending June 30, 2021, analysts expect LKQ’s EPS and revenue to increase 37.7% and 28.2%, respectively, year-over-year to $0.73 and $3.08 billion. It surpassed the consensus EPS estimates in all the trailing four quarters.
LKQ announced on May 25, 2021, that it had acquired the business and assets of Green Bean Battery, LLC, a hybrid battery reconditioner and installer. The acquisition might help LKQ expand its parts and services offerings to meet the demands and opportunities that arise from technological changes in the automobile industry. Its stock has rallied 69.6% over the past year to close yesterday’s trading session at $50.29.
LKQ’s POWR Ratings reflect this promising outlook. The stock has an overall A rating, which equates to Strong Buy in our POWR Ratings system. It has a B grade for Growth, Momentum, Sentiment and Quality. In addition to these ratings, one can see LKQ’s ratings for Stability and Value here.
LKQ is ranked #1 in the Auto Parts industry.
Gates Industrial Corporation plc (GTES)
Power transmission and fluid power solutions provider GTES’ offerings include synchronous or asynchronous belts, including V-belts, CVT belts, and Micro-V belts, related components, and metal drive components and kits for stationary and mobile drives. Its products are used across several industries, including construction, automotive, transportation and energy.
GTES’ net sales came in at $881.30 million for its fiscal first quarter, ended April 3, 2021, which represents a 24.1% year-over year rise. The company’s net income for the quarter was $67.30 million, up 89% year-over-year. Its adjusted EPS increased 57.1% year-over-year to $0.33.
Analysts expect GTES’ EPS and revenue to increase 1,100% and 57%, respectively, year-over-year to $0.36 and $904.95 million for the current quarter, ending June 30, 2021. It surpassed the Street’s EPS estimates in each of the trailing four quarters.
The company introduced its MEGASys MXT with XtraTuff Plus cover (MXT-XTP) on April 27, 2021. The product is a universally applicable hydraulic hose featuring GTES’ patent-pending wire-braid technology. Mike Haen, the vice president of GTES’ industrial global product line management said, “We continue to revitalize our premium MEGASys hydraulics portfolio by providing solutions for our customers’ most challenging applications.” The stock has gained 64.3% over the past nine months to close yesterday’s trading session at $18.27.
GTES’ strong fundamentals are reflected in its POWR Ratings. It has an overall A rating, which equates to Strong Buy in our POWR Ratings system. The stock also has an A grade for Momentum, and a B grade for Growth, Stability, and Sentiment. Click here to see the additional POWR Ratings for GTES (Value and Quality).
GTES is ranked #4 in the Auto Parts industry.
Standard Motor Products, Inc. (SMP)
SMP is a manufacturer and distributor of replacement parts for motor vehicles in the automotive aftermarket industry. The company’s segments include engine management and temperature control. It sells its products primarily to automotive aftermarket retailers, program distribution groups, warehouse distributors, and original equipment manufacturers (OEMs).
For the first quarter ended March 31, 2021, SMP’s net sales increased 8.7% year-over-year to $276.55 million. Its gross profit increased more than 19% year-over-year to $83.78 million. And its net income increased 143.4% year-over-year to $21 million. Its non-GAAP EPS for the quarter was $0.97, up 125.6% year-over-year.
For the current quarter, ending June 30, 2021, analysts expect SMP’s EPS to increase 25% year-over-year to $0.65. Furthermore, it surpassed the consensus EPS estimates in each of the trailing four quarters. Its annual revenue is expected to increase 1.6% from the prior-year quarter to $1.11 billion in 2022.
On June 1, 2021, SMP announced that it had acquired 100% of the capital stock of Trumpet Holdings, Inc., which is commonly known as Trombetta. The acquisition is in sync with SMP’s strategy to expand beyond its core aftermarket business into related markets. Trombetta’s product portfolio includes well-established electromechanical parts, such as contactors and voltage regulators. The stock has soared 17.5% year-to-date to close yesterday’s trading session at $47.52.
It’s no surprise that SMP has an overall A rating, which equates to Strong Buy in our POWR Ratings system. The stock has a B grade for Value, Sentiment, Quality and Momentum. Click here to see SMP’s ratings for Stability and Growth as well.
SMP is ranked #2 in the Auto Parts industry.
Want More Great Investing Ideas?
BRDCY shares were trading at $22.51 per share on Wednesday morning, down $0.00 (0.00%). Year-to-date, BRDCY has gained 37.26%, versus a 13.43% rise in the benchmark S&P 500 index during the same period.
About the Author: Ananyo Guha Niyogi
Ananyo’s ardent interest in capital markets, wealth management, and financial regulatory issues, led him to a career as an investment analyst. His goal is to educate individual investors by making complex financial issues easy to understand. More...
More Resources for the Stocks in this Article
|Ticker||POWR Rating||Industry Rank||Rank in Industry|
|BRDCY||Get Rating||Get Rating||Get Rating|
|LKQ||Get Rating||Get Rating||Get Rating|
|GTES||Get Rating||Get Rating||Get Rating|
|SMP||Get Rating||Get Rating||Get Rating|