Foreign Automotive Industry Outlook: Treading A Rough Road
Zacks Investment Research | May 31, 2019 08:13AM ET
Companies in the Zacks Zacks Industry Rank , which is basically the average of the Zacks Rank of all member stocks, indicates bleak near-term prospects. Our research shows that the top 50% of the Zacks-ranked industries outperforms the bottom 50% by a factor of more than 2 to 1.
The industry’s position in the bottom 50% of the Zacks-ranked industries is a result of negative earnings outlook for the constituent companies in aggregate. Looking at the aggregate earnings estimate revisions, it appears that analysts are losing confidence in this group’s earnings growth potential. In the past year, the industry’s earnings estimate for the current year has declined by 23.5%.
Before we present a few stocks that you may want to consider for your portfolio, let’s take a look at the industry’s recent stock-market performance and valuation picture.
Industry Lags on Stock Market Performance
The Zacks Automotive – Foreign industry has lagged the broader Zacks Auto sector as well as the Zacks S&P 500 composite over the past year.
The industry has declined 24.9% over this period compared with the broader sector’s fall of 20.7%. The S&P 500 rose 2.3%.
One-Year Price Performance
Industry’s Current Valuation
On the basis of the trailing 12-month enterprise value-to EBITDA (EV/EBITDA), which is a commonly used multiple for valuing auto stocks, the industry is currently trading at 5.52X compared with the S&P 500’s 10.71X and the sector’s 8.84X.
Over the past five years, the industry has traded as high as 7.72X, as low as 5.44X and at a median of 6.89X, as the chart below shows.
Trailing 12-Month Enterprise Value-to EBITDA (EV/EBITDA) Ratio
Trailing 12-Month Enterprise Value-to EBITDA (EV/EBITDA) Ratio
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Bottom Line
The industry is faced with several changes and challenges. Rising trade tensions, adapting to the transition toward electric vehicles and an autonomous future along with a decline in China sales will keep the ride bumpy for automakers.
Below we present two stocks, namely, Tata Motors Ltd (TTM) and Geely Automobile Holdings Ltd. (GELYY), with a Zacks Rank #2 (Buy)
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Tata Motors: The stock of this leading Indian auto manufacturer has gained 3.6% over the past three months. The Zacks Consensus Estimate for the current-year EPS has been revised 3.5% upward over the last 30 days.
Price and Consensus: TTM
Geely Automobile: The stock of this Hong Kong-based auto manufacturer has declined 19.4% over the past three months. Meanwhile, the Zacks Consensus Estimate for the current-year EPS has been revised 2.2% upward over the last 60 days.
Price and Consensus: GELYY
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