Cars are getting smarter and safer, which means Aptiv sells more safety content per vehicle produced.
DreamstimeAutomotive supplier Aptiv reported better-than-expected earnings Thursday, which is becoming a trend in the auto industry. That’s good news for Aptiv and other sector stocks in the short run.
In addition, several cyclical and secular trends are aligning that could boost auto shares in the future.
Aptiv (ticker: APTV) reported $1.13 in per-share earnings from $3.7 billion in sales. Wall Street was looking for 81 cents per share from $3.3 billion in sales. It was an earnings beat similar to the ones reported by other auto companies, including Ford Motor (F) and TE Connectivity (TEL).
Aptiv stock was up 5.5% to $98.67 around midday Thursday.
Among cyclical trends, global car sales are rebounding from pandemic-induced lows. Sales in China, in fact, are above pre-Covid levels. In the U.S., dealer inventories are far below normal, which will turn into a tailwind for sales when dealers replenish stocks.
Secular trends are also boosting Aptiv. The company makes products that enable autonomous driving—called active safety within the car business—as well as products for vehicle electrification.
Cars are getting smarter and safer, which means Aptiv sells more safety content per vehicle produced. That is a trend affecting all vehicles. But electric vehicles, in particular, are booming, and Covid could be part of the reason, according to some observers.
“The reality is consumers are more environmentally focused after this pandemic,” Aptiv CEO Kevin Clark said in an interview. He isn’t sure why, but it is something his company sees.
A big factor related to the pandemic is companies being mindful of costs, he said. Global auto makers have had to be careful with cash in 2020 and decide what solutions will help them meet global emission standards in the future. “OEMs have gone from [pursuing] multiple solutions to focused solutions,” Clark said. And battery solutions are winning more than their fair share of development dollars.
Clark also acknowledges the influence coming from the success of Tesla (TSLA). “Given [Tesla’s] acceptance and engineering…there is a pull from consumers. They are pulling for battery electric vehicles more than ever before.”
Some of the good news appears reflected in Aptiv stock. Shares trade for 26 times estimated 2021 earnings of $3.81 a share. But 2021 estimates are far short of the $4.80 Aptiv earned in 2019. If things keep getting better, the 2021 earnings estimates will have to go higher.
Baird analyst Luke Junk noted in a Thursday research report that Aptiv’s fourth-quarter guidance implies earnings of about $1 a share. That is above his estimates and above the Wall Street consensus of 92 cents a share. Junk rates share Buy and has a $117 price target for the stock.
Year to date, Aptiv shares are up about 4%, a little better than comparable returns of the S&P 500 and the Dow Jones Industrial Average.
Write to Al Root at allen.root@dowjones.com
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