MTOR: Meritor: An Under the Radar Stock Driving Electric Vehicles Forward

Meritor (MTOR), is a Michigan- based global supplier of drivetrain, mobility, braking and aftermarket solutions for commercial vehicle and industrial markets. The company’s customer base includes AB Volvo, Daimler AG, Navistar International Corporation, Oshkosh, PACCAR, and Ford.

Now MTOR can add an electric vehicle manufacturer to its list of customers. Last month, Volta Trucks, the leading full-electric commercial vehicle manufacturer, disclosed it selected Meritor as the strategic drivetrain component supplier. This partnership will help support the delivery of Volta Zero vehicles for customer trials this year. Here, Meritor will supply the “single unit, containing the electric motor, transmission, and rear axle of the Volta Zero, with its Blue HorizionTM 14XeTM integrated ePowertrain.”

Ken Hogan, Meritor’s senior vice president and president, Truck, Europe and Asia Pacific, said, “Meritor is excited to work with Volta Trucks on bringing electric commercial vehicles to the European market. Our expertise and investment in advanced technologies has made it possible to offer customers like Volta Trucks, solutions to meet their electrification needs,”

In fiscal 2020, its total sales stood at $3 billion. Sales from operations outside North America accounted for 35% of revenue. In the fiscal first quarter of 2021 (ended in December), Meritor reported sales of $889 million, while adjusted net income stood at $44 million or $0.60 per share, which was significantly higher than the prior-year figure of $19 million. The company said, “The increase in operating cash flow year over year was driven primarily by the impact of accounts receivable factoring as a result of higher balances available under the factoring programs and lower incentive compensation payments.”

In fiscal 2021, Meritor expects sales between $3.65 billion and $3.8 billion, higher than its previous guidance of sales between $3.1 billion and $3.35 billion. It has forecast EBITDA margin between 10.6% and 10.8%, higher than the previous estimates of 9.2% and 10.2%.

The company also expects earnings per share between $2.25 and $2.50 compared to its previous earnings forecast between $1.10 and $1.75.

It’s evident that Meritor aims to grow via strategic partnerships and gain traction in major international markets in order to drive revenue growth. The company is valued at a market cap of $2.22 billion, indicating a forward price to sales multiple of 0.6x and a price to earnings ratio of 13.2x.

Wall Street expects the company to grow sales by 22.1% to $3.72 billion in fiscal 2021 and by 11% to $4.12 billion in fiscal 2022. Further, analysts expect the company to grow earnings at an annual rate of 64% in the next five years, indicating the stock is undervalued.

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Meritor’s rising sales and profit margins, coupled with its cheap valuation and diversified revenue base, make it one of the top vehicle parts stocks to consider owning in 2021 and beyond.

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MTOR shares were trading at $31.58 per share on Wednesday afternoon, up $0.96 (+3.14%). Year-to-date, MTOR has gained 13.15%, versus a 2.84% rise in the benchmark S&P 500 index during the same period.

About the Author: Aditya Raghunath

Aditya Raghunath is a financial journalist who writes about business, public equities, and personal finance. His work has been published on several digital platforms in the U.S. and Canada, including The Motley Fool, Finscreener, and Market Realist. More...