Aptiv PLC (APTV, $141.15): “Driving the industry forward”
By: Harvey
Read, AIM Student at Marquette University
Summary
- Aptiv Plc. (NYSE:APTV) is a global manufacturer and designer of electronic automotive components, providing electrical and safety technology solutions to the global commercial vehicle and automotive market.
- Products include wiring assemblies, hybrid high voltage distribution systems, cable management, electrical centers, and advanced software development. All catering to passenger security, comfort, safety, and vehicle operation.
- Aptiv services automotive and commercial vehicle manufacturers across Europe, North America, Asia Pacific, the Middle East, and other international regions. Customers include GM, Volkswagen, Fiat, and Hyundai. The company manufactures out of 126 facilities across 44 countries, and is headquartered in Dublin, Ireland.
- Record breaking bookings, expanding market share, strong forecasted revenue growth, and valuable acquisitions have strengthened Aptiv’s position as an industry leader.
- Supply chain disruptions, semiconductor shortage, and raw material inflation have hampered profit margins. If Aptiv can mitigate these factors, their attraction to investors will increase significantly.
Key Points:
The connected car market is projected to reach $56.3 billion
by 2026, from its 2021 estimate of $23.6 billion, growing at a compounding
annual growth rate of 19%. The Asia Pacific region is driving much of this
growth amid rising government safety regulations for vehicles, increased
adoption of high end and luxury cars, and further integrated vehicle
connectivity.
Aptivs revenue has grown at a compounding annual growth rate
of 5.3% over the past 5 years, taking advantage of the increasing demand for
electric and connected vehicles, and expanding penetration into China and India.
With 96% of new vehicles being equipped with built in connectivity by 2030,
Aptiv is moving proactively, acquiring companies in the software space to stay
ahead of the market. In January, Aptiv acquired edge-to-cloud software firm
Wind River for $4.3 billion. Wind River is used on over two billion devices
across 1700 customers globally, and in 2021 generated $400 million in revenues.
As demand for connected devices and the internet of things increases, the
global semiconductor shortage worsens, halting production for companies from
Apple to Tesla. Aptiv will need to navigate these supply chain issues to stay
up with product demand.
What has the stock done lately?
Year to date, Aptiv stock has closed at prices ranging from
$174.12 and $130.84, with the stock down 13.79% from its January 3rd
opening. Despite growing revenues, and record bookings of $24 billion in 2021,
a combination of COVID and supply chain disruptions, and rising inflation have
squeezed profit margins, which has reflected in the stock dropping from its
all-time high in November 2021.
Past Year Performance:
Over the past 52 weeks, the price range for Aptiv was $127.63
to $180.81. Aptiv experienced their 52-week and all-time high on the 3rd
November 2021 after reporting third quarter earnings that exceeded analysts’
expectations. The company reported earnings of $0.38 a share on $3.7 billion in
sales, with Wall Street expecting earnings per share of $0.31 on $3.5 billion
in sales. While sales increased 19.5% from $13.066 billion in December ’20 to
$15.618 billion in Dec ’21, net income fell a dramatic 67% from $1.769 billion
to $527 million due to an increase in materials and manufacturing costs, a
global chip shortage, and supply chain complications.
My Takeaway:
With global demand for connected vehicles surging, Aptiv is in
a great position to capitalize, with strong revenue growth forecasts on the
horizon and an expanding market share. Regular acquisitions of companies such
as Wind River is a solid indication of Aptiv moving proactively to continue to
innovate in the space and maintain its position as one of the industry leaders.
However, due to the ongoing global semiconductor shortage, supply chain
disruptions, and increasing commodity prices that have greatly reduced profit
margins, I recommend Aptiv as a hold, until supply chain disruptions stabilize,
and the company shows it can navigate current inflationary effects that have
greatly reduced profit margins.
