Global car sales fell sharply amid the COVID-19 pandemic as people retreated to their homes, where they spent most of their time under lockdown mandates with nary a thought for automobile purchasing. With the gradual economic recovery, however, companies in the sector are witnessing increase in demand. In fact, in March, the U.S. vehicle market witnessed a strong recovery and saw its first quarter 2021 sales rebound to pre-pandemic levels.
Governments worldwide are pushing for increased use of electric vehicles (EVs) to transition their countries to a clean energy future. The demand for conventional, internal combustion cars is also expected to increase with an anticipated decline in crude oil prices this year. Investors’ interest in the automotive space is evident in the First Trust NASDAQ Global Auto Index Fund’s (CARZ) 41% returns over the past six months compared to the SPDR S&P 500 ETF Trust’s (SPY) 23.5% gains over the same period.
While many automotive players are trading at lofty valuations, Oshkosh Corporation (OSK), AutoNation, Inc. (AN), and Isuzu Motors Limited (ISUZY) still look undervalued at their current price levels given their near-term growth prospects. So, we think it could be beneficial to bet on them now.
Oshkosh Corporation (OSK)
Formerly known as Oshkosh Truck Corporation, OSK designs, manufactures, and markets specialty vehicles and vehicle bodies worldwide. It also has a long and successful history in developing EVs also, and its technology reduces energy consumption and emissions. The company operates through four segments mainly—Access equipment, Defense, Fire & Emergency, and Commercial.
OSK’s defense segment’s operating income has increased 70.3% year-over-year to $52.80 million for its fiscal year 2021 first quarter, ended December 31, 2020. The company’s non-GAAP net income has increased 2.9% year-over-year to $77.90 million. Also, its adjusted EPS increased 2.7% year-over-year to $1.13.
For the quarter ending June 30, 2021, analysts expect OSK’s EPS to be $1.87, which represents a 45% year-over-year increase. It also surpassed consensus EPS estimates in three of the trailing four quarters. The company’s revenue is expected to increase 5.6% year-over-year to $7.24 billion in fiscal 2021.
In terms of forward EV/Sales, OSK is currently trading at 1.18x, which is 41% lower than the 2x industry average. Its 1.17x forward Price/Sales is 26.9% lower than the 1.60x industry average.
In February, OSK partnered with ALLETE Clean Energy, a wholly owned subsidiary of ALLETE, Inc. (ALE), on a renewable energy sale agreement to develop a wind energy site that is currently under construction in Caddo County in Oklahoma. It is the first virtual power purchase agreement the company has made and the first offsite purchase of renewable energy. The move represents a step forward in OSK’s clean air vision, which is expected to generate positive returns soon. The stock has gained 84.7% over the past year and closed yesterday’s trading session at $123.39.
It’s no surprise that OSK has an overall B rating, which equates to 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 Value, and a B grade for Sentiment. Click here to see OSK’s rating for Momentum, Stability, Growth, and Quality.
OSK is ranked #19 of 53 stocks in the B-rated Auto and Vehicles Manufacturers industry.
AutoNation, Inc. (AN)
AN offers a range of automotive products and services, including new and used vehicles, and parts and services such as automotive repair and maintenance, and wholesale parts and collision services. It operates primarily through three segments—Domestic, Import, and Premium Luxury. The company owns and operates 74 AutoNation-branded collision centers, five AutoNation USA used vehicle stores, four AutoNation-branded automotive auction operations, and three parts distribution centers.
For its fiscal year 2021 first quarter, ended March 31, AN’s total revenues came in at $5.90 billion, indicating 26.5% growth year-over-year. Its gross profit for the quarter increased 27% year-over-year to $1.03 billion. The company’s operating income was $336.90 million, up 253.6% year-over-year. Its net income came in at $239.50 million, up 203.1% year-over-year, and its adjusted EPS increased 206.6% year-over-year to $2.79.
The company’s EPS is expected to increase 79.4% year-over-year to $2.53 for the current quarter, ending June 30, 2021. AN surpassed consensus EPS estimates in each of the trailing four quarters. Also, for the quarter ending September 30, 2021, AN’s revenue is expected to be $5.97 billion, which represents a 10.6% year-over-year increase.
In terms of forward EV/Sales, AN is currently trading at 0.52x, which is 70.1% lower than the 1.74x industry average. Its 0.35x forward Price/Sales is 75.2% lower than the 1.41x industry average.
In February, AN launched its enhanced AutoNation Express experience. It is an integrated retailing solution that provides consumers with a seamless and intuitive omnichannel vehicle shopping and purchase experience. It is is expected to take the company’s service delivery to new heights and attract more. consumers. The stock has rallied 183.3% over the past year and closed yesterday’s trading session at $101.40.
AN’s POWR Ratings reflect this promising outlook. The stock has an overall B rating, which equates to Buy in our POWR Ratings system. It has an A grade for Value and Momentum, and a B grade for Sentiment and Quality. Click here see the additional ratings of AN (Stability and Growth).
AN is ranked #2 of 25 stocks in the B-rated Auto Dealer & Rentals industry.
Isuzu Motors Limited (ISUZY)
Headquartered in Tokyo, Japan, ISUZY manufactures and sells commercial vehicles, light commercial vehicles, and diesel engines and components in Japan, Thailand, and internationally. The company’s products include heavy- and medium-duty trucks and buses, and light-duty trucks, pickup trucks and sport utility vehicles, and marine and industrial engines.
ISUZY’s ¥515.30 billion in total revenue for its fiscal year 2021 third quarter (ended December 31, 2020) represents a 3.4% year-over-year rise. The company’s operating Income has increased 9.2% year-over-year to ¥46.20 billion. Its net income has increased 9.4% year-over-year to ¥30.20 billion.
Analysts expect ISUZY’s revenue to increase 49.4% year-over-year to $4.63 billion for the quarter ending June 30, 2021. In terms of forward EV/Sales, the stock is currently trading at 0.51x, which is 70.7% lower than the 1.74x industry average. Its 0.43x forward Price/Sales is 69.5% lower than the 1.41x industry average.
This month, ISUZY acquired UD Trucks from the Volvo AB (VLVLY) as part of its strategic alliance with VLVLY. The alliance, which is agreed to run at least for 20 years, includes forming a technology partnership, among elements. The alliance is expected to maximize value and benefits for customers and generate significant returns for the company in the long-term. The stock has gained 46.3% over the past year to close yesterday’s trading session at $10.20.
ISUZY’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall A rating, which equates to Strong Buy in our proprietary rating system. It has an A grade for Value, and a B grade for Stability. Click here to see the additional POWR Ratings for ISUZY (Momentum, Quality, Growth, and Sentiment).
ISUZY is ranked #4 in the Auto and Vehicles Manufacturers industry.
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OSK shares were trading at $128.60 per share on Wednesday morning, up $5.21 (+4.22%). Year-to-date, OSK has gained 49.92%, versus a 11.98% 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...
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