Auto parts, the "picks-n-shovels" of the real economy eh? Wanna ride?
Key Stats for Delphi Automotive PLC
| Ticker | DLPH |
|---|---|
| Sector | Auto, Truck & Motorcycle Parts |
| Latest price | $87.06 |
| Value | $23,323M |
| Daily vol | $302M |
| Date | 17 May 2017 |
| Links | Yahoo Finance, SEC Edgar, delphi.com |
1. What's Delphi do?
Delphi Automotive is a global technology company serving the automotive sector. The Company designs and manufactures vehicle components, and provides electrical and electronic, powertrain and active safety technology solutions to the global automotive and commercial vehicle markets.
If you look at their client list... it's a who's who of the auto market and only one customers is over 10% of sales, GM. For 2016 the split was: GM 14%; Volkswagen 8%; Ford 6%; Fiat Chrysler 5%; GM China 5%; Daimler 5%; Peugeot Citroen 5%; Hyundai 3%; Geely 3%; and Toyota 2%. Though I wonder why there is no Renault, Honda, BMW or Tesla? Suppose you can't serve everyone!
From a sales perspective its 37% North America, 2% South, 35% Europe&MEA and 26% Asia-Pac. So perhaps there's room to grow in Asia?
How are they doing, number wise?
At first look the data looks nice, but that is partially 'cos of a big acquisition in Dec 2015 and another in Oct 2012.
| Metric | 2016A | 2015A | 2014A | 2013A | 2012A |
|---|---|---|---|---|---|
| Revenue | $16.7bn | $15.2bn | $15.5bn | $15.1bn | $14.1bn |
| EPS | $4.59 | $5.06 | $4.48 | $3.89 | $3.33 |
Management themselves are very happy to offer up "Adjusted" figures ignoring discontinued operations, papering over restructuring costs, one-off project costs, etc, etc. I hate that...but for now, let's park that concern.
Perhaps I shouldn't be too harsh, dividends are rising. Net debt is manageable at $3.5bn, i.e. 1.1x cashflow, and they've done an average buyback of nearly $1bn of stock each of the last 3 years.
| Metric | 2016A | 2015A | 2014A | 2013A | 2012A |
|---|---|---|---|---|---|
| DPS | $1.16 | $1.00 | $1.00 | $0.68 | $0.00 |
| Buyback | $0.6bn | $1.2bn | $1.0bn | $0.5bn | $0.4bn |
Looking into next years, there's a clear expectation that jettisoning their Thermal Business, and the recent acquisition of Hellermann Tyton, are going to drive substantially higher margins!
| Metric | 2016A | 2017E | 2018E |
|---|---|---|---|
| Revenue | $16.7bn | $16.9bn | $17.8bn |
| EPS | $4.59 | $6.62 | $7.22 |
| DPS | $1.16 | $1.18 | N/A |
Though, there's one fly in the ointment that are these forecasts...
Powertrain
... the recent announcement that they want to split Delphi in two. With a tax free spin-off of their "Powertrain Systems" division. To give you an idea on it's size... it was 27% of sales and 31% of operating profit in the first quarter.
This is the unit that focuses on fuel systems, instead of electrical components. Who knows... maybe this is designed to sell off the unit most likely to be impacted by electric vehicles?
2. How do they stack up to the competition
It's not the biggest player in the market, though margins and returns are top class.
| Companies | Latest Sales | Operating Profit | Return on Equity |
|---|---|---|---|
| Delphi Automotive | $16,902M | 18% | 48% |
| Continental AG (ADR) | $46,211M | 15% | 20% |
| Johnson Controls International | $42,598M | 9% | -10% |
| TE Connectivity | $12,743M | 21% | 25% |
| Cummins Inc. | $17,807M | 12% | 21% |
| Genuine Parts Company | $15,527M | 8% | 21% |
| Lear Corporation | $18,893M | 10% | 32% |
| Autoliv Inc. | $10,252M | 12% | 16% |
| Visteon Corp | $3,169M | 10% | 24% |
Which makes the 13x valuation a little surprising. Especially with it's growth rate looking good, and the management team being shareholder friendly, with spin-offs and streamlining the business.
| Peers | Valuation | Forecast PE | Long-term Growth | Dividend Yield | FCF Yield |
|---|---|---|---|---|---|
| DLPH.K | $23,323M | 13x | 13% | 1% | 9% |
| CTTAY.PK | $45,100M | 13x | 9% | 2% | 12% |
| JCI | $39,466M | 16x | 14% | 2% | 4% |
| TEL | $27,135M | 16x | 9% | 2% | 12% |
| CMI | $26,443M | 17x | 14% | 3% | 10% |
| GPC | $13,492M | 19x | 8% | 3% | 9% |
| LEA | $10,057M | 9x | 11% | 1% | 14% |
| ALV | $9,140M | 17x | 8% | 2% | 13% |
| VC | $3,257M | 18x | 17% | 0% | 7% |
Perhaps there is disappointment in the 1% dividend yield? Or no one's yet convinced in the 2017 forecast EPS of $6.62 a share? Or everyone knows about their "adjusted figures" inflating reality?
3. What does Wall Street think?
The professionals on Wall Street have a $98 for DLPH, which is a 13% upside. Unsurprisingly their recommendation to clients is Buy. The spin-off sure was a nice boost, with the target jumping to $98 from $87 beforehand! But why not, it looks shareholder friendly, and this is a management team that's beaten forecasts 7 quarters in a row.
So I'm not surprised that the sentiment's improved over the last 6 months, as the valuation's risen from 10x earnings to 13x. Though it's good to note that in the last year the stock's traded anywhere from 10x to 17x earnings.
4. Kaput or motoring?
I'm tempted. Mid-single digit topline growth, potentially 10% at the bottom line, buybacks, spinoffs, and a willingness to make the right deals to drive efficiencies.
We've missed the move from the low 60s to the high 80s. But isn't there operational reasons the stock can go higher over the long-term. And who knows, may there'll be a valuation / sentiment boost along the way?
Perhaps it was a value play back in Oct. But isn't it really a quality stock?
View the archive of Stock a Day posts at its subreddit r/stockaday. And if you want an email reminder when we post each stockAday, tell us here?
Disclosure: I have no position in any of the stocks mentioned. However I may initiate a position within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article. Reddit, moderators, and the author do not advise making investment decisions based on discussion in these posts. Analysis is not subject to validation and users take action at their own risk.
Author notes: u/shane_stockflare works at a financial website, Stockflare, and is a Chartered Financial Analyst.
Submitted May 17, 2017 at 06:05PM by shane_stockflare http://ift.tt/2qxDpOn
