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Aptiv Rides on Investments & Collaborations, High Costs Rife
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Aptiv PLC (APTV - Free Report) is banking on technology investments, acquisitions and collaborations in order to capitalize on developing automotive markets.
In second-quarter 2018, the company reported better-than-expected results. Adjusted earnings of $1.40 per share surpassed the Zacks Consensus Estimate by 3 cents and came above the guided range of $1.33-$1.39 per share. Revenues totaled $3.7 billion, which exceeded the consensus mark by $134 million and the guided range of $3.5-$3.6 billion.
Aptiv has an impressive earnings surprise history, having outpaced estimates in three of the trailing four quarters, with an average beat of 3.1%. For the third quarter, the consensus estimate declined 3.9% over the past 30 days.
So far this year, shares of Aptiv have gained 11.4%, underperforming the 14.4% rally of the industry it belongs to.
Investments and Collaborations Driving Growth
Aptiv has ramped up investments in advanced technology and collaborations to make the most of the lucrative opportunities offered by the rapidly evolving automotive sector.
In terms of technology, the company has developed automated driving software, key active safety sensing technologies and Multi-Domain Controller — an advanced centralized supercomputer platform that integrates information from sensing systems — and mapping and navigation data to assist driving decisions.
Aptiv has collaborated with Mobileye N.V. for joint development of Centralized Sensing Localization and Planning ("CSLP") system — a complete turn-key fully autonomous driving platform. Its collaboration with BMW and Intel for development and use of self-driving technology is also commendable.
Acquisitions: A Key Growth Strategy
The MVL buyout strengthens Aptiv’s position in the high voltage market, especially in the Asia Pacific Region. While the Unwired and Antaya acquisitions expanded the company’s portfolio of connected technologies, HellermanTyton added opportunities in the adjacent industrial end markets. Meanwhile, Movimento and Control-Tec are the foundation of the company’s connected services platform.
Recently, Aptiv completed the KUM buyout and announced the acquisition of Winchester Interconnect. Both the buyouts are expected to strengthen the company’s Signal and Power Solutions segment. Aptiv intends to continue making investments aimed at organic as well as inorganic growth.
Escalation in Costs: A Possible Headwind
Aptiv is likely to witness escalation in costs as it plans to continue making investments and also remains embroiled in a legal matter. Investments in products like autonomous driving software are expected to make meaningful contributions after 2020, indicating that acceptance and integration of technology will take longer time. In addition, the company is embroiled with a litigation associated with general unsecured claims against the former Delphi Corporation, further adding to its costs.
Vehicle Recalls: An Added Concern
Globally, vehicle recalls by OEMs has exceeded the historical levels. Increased transition associated with global vehicle platforms is contributing significantly toward recalls outside the United States. With increasing sensitivity about safety issues, number of automotive recalls is expected to remain above historical levels in the near future. In most of the cases, Aptiv has to share recalls related charges with its OEM customers. This is a drain on the company’s resources and weighs on its bottom line.
The long-term expected EPS (three to five years) growth rate for Genpact, WEX and Total System Services is 10%, 15% and 14.6%, respectively.
The Hottest Tech Mega-Trend of All
Last year, it generated $8 billion in global revenues. By 2020, it's predicted to blast through the roof to $47 billion. Famed investor Mark Cuban says it will produce "the world's first trillionaires," but that should still leave plenty of money for regular investors who make the right trades early.
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Aptiv Rides on Investments & Collaborations, High Costs Rife
Aptiv PLC (APTV - Free Report) is banking on technology investments, acquisitions and collaborations in order to capitalize on developing automotive markets.
In second-quarter 2018, the company reported better-than-expected results. Adjusted earnings of $1.40 per share surpassed the Zacks Consensus Estimate by 3 cents and came above the guided range of $1.33-$1.39 per share. Revenues totaled $3.7 billion, which exceeded the consensus mark by $134 million and the guided range of $3.5-$3.6 billion.
Aptiv has an impressive earnings surprise history, having outpaced estimates in three of the trailing four quarters, with an average beat of 3.1%. For the third quarter, the consensus estimate declined 3.9% over the past 30 days.
So far this year, shares of Aptiv have gained 11.4%, underperforming the 14.4% rally of the industry it belongs to.
Investments and Collaborations Driving Growth
Aptiv has ramped up investments in advanced technology and collaborations to make the most of the lucrative opportunities offered by the rapidly evolving automotive sector.
In terms of technology, the company has developed automated driving software, key active safety sensing technologies and Multi-Domain Controller — an advanced centralized supercomputer platform that integrates information from sensing systems — and mapping and navigation data to assist driving decisions.
Aptiv has collaborated with Mobileye N.V. for joint development of Centralized Sensing Localization and Planning ("CSLP") system — a complete turn-key fully autonomous driving platform. Its collaboration with BMW and Intel for development and use of self-driving technology is also commendable.
Acquisitions: A Key Growth Strategy
The MVL buyout strengthens Aptiv’s position in the high voltage market, especially in the Asia Pacific Region. While the Unwired and Antaya acquisitions expanded the company’s portfolio of connected technologies, HellermanTyton added opportunities in the adjacent industrial end markets. Meanwhile, Movimento and Control-Tec are the foundation of the company’s connected services platform.
Recently, Aptiv completed the KUM buyout and announced the acquisition of Winchester Interconnect. Both the buyouts are expected to strengthen the company’s Signal and Power Solutions segment. Aptiv intends to continue making investments aimed at organic as well as inorganic growth.
Escalation in Costs: A Possible Headwind
Aptiv is likely to witness escalation in costs as it plans to continue making investments and also remains embroiled in a legal matter. Investments in products like autonomous driving software are expected to make meaningful contributions after 2020, indicating that acceptance and integration of technology will take longer time. In addition, the company is embroiled with a litigation associated with general unsecured claims against the former Delphi Corporation, further adding to its costs.
Vehicle Recalls: An Added Concern
Globally, vehicle recalls by OEMs has exceeded the historical levels. Increased transition associated with global vehicle platforms is contributing significantly toward recalls outside the United States. With increasing sensitivity about safety issues, number of automotive recalls is expected to remain above historical levels in the near future. In most of the cases, Aptiv has to share recalls related charges with its OEM customers. This is a drain on the company’s resources and weighs on its bottom line.
Zacks Rank & Key Picks
Currently, Aptiv carries a Zacks Rank #3 (Hold). Some better-ranked stocks in the broader Business Services sector include Genpact Limited (G - Free Report) , WEX Inc. (WEX - Free Report) and Total System Services, Inc. . All the stocks carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
The long-term expected EPS (three to five years) growth rate for Genpact, WEX and Total System Services is 10%, 15% and 14.6%, respectively.
The Hottest Tech Mega-Trend of All
Last year, it generated $8 billion in global revenues. By 2020, it's predicted to blast through the roof to $47 billion. Famed investor Mark Cuban says it will produce "the world's first trillionaires," but that should still leave plenty of money for regular investors who make the right trades early.
See Zacks' 3 Best Stocks to Play This Trend >>