Auto Equipment Makers Growing Sales, Earnings After Slow 2020

Auto parts makers like Tenneco NYSE: TEN and AdientNYSE: ADNT are on the march after limping through 2020. Sales and earnings growth are picking up fast as the companies contend with challenges such as the global chip shortage. 

Tenneco bolted 55.71% in May, and is up 26.34% this month. Those are part of the bigger picture representing a return of 86.89% year-to-date and 149.50% in the past year.

What’s going on to cause this kind of unusual price move?

The move began in early May, following the company’s better-than-expected quarterly earnings report. 

Tenneco reported earnings of $1.09 per share on revenue of $4.731 billion, increases on both the bottom- and top lines. 

Since mid-March, the stock had been forming a cup-shaped consolidation, with a very tight trading range and low trading volume. You’ll often see those characteristics in a stock that is setting up before it makes a big move, and that’s indeed what happened in this case. 

The stock cleared a buy point above $13.12 in more than triple average volume on May 10. It also gained in heavy volume in the previous two sessions.

Weekly volume for the week ended May 14 was 86% higher than average.

The company’s push toward clean-air technology spurred much of the growth in the quarter. 

Because of the well-publicized shortage of semiconductors, auto manufacturers are focusing their efforts on SUVs and pickup trucks, which have been the top sellers recently. Those manufacturing lines are pushing demand for Tenneco’s emissions systems.  

Increased sales of used cars, some of which need upgrades, also resulted in sales growth for Tenneco.

The company also raised full-year guidance. It now expects annual revenue in the range of $17.6 billion to $18.1 billion, and adjusted EBITDA ranging from $1.35 billion to $1.45 billion.

Tenneco shares skidded in Friday’s session, closing at $19.81, down $1.88 or 8.67%. Friday’s action brought the stock below its 10-day moving average, so there may be a new buy point in the not-so-distant future. 

Ireland-based Adient, a mid-cap stock,  public in 2016, which means it’s well within the time when it can still notch big price gains. 

The stock is down sharply for the month of June, but it’s up 18.03% year-to-date and 143.71% over the past year.

Shares skidded more than 16% last week, in volume 24% heavier than normal. There was no specific news about the company, but mid-caps as an asset class also fell hard last week. 

In addition, Adient does tend to be more volatile than the broader market, and it wouldn’t be surprising to see profit-taking after a strong run-up. 

The company makes seating systems for passenger cars, light trucks and commercial vehicles. It sells to automakers globally. 

Sales had been declining well before pandemic-era shutdowns, but that trend may be reversing. In the most recent quarter, Adient reported earnings per share of $1.15, up 85% from the year-earlier quarter.

Revenue was $3.819 billion, up 9% from a year ago. It was the first revenue growth in eight quarters. 

In March Adient announced that it ended a joint venture partnership in China, and will be pursuing its own strategies in China independently. The company said this move “is expected to result in a variety of benefits, including capturing growth in profitable and expanding segments; improving the integration of the company's China operations; and allowing for more certain value realization relative to status quo, where cash and value are generated from dividends at entities not in Adient's control.”

After a slowdown in earnings in 2019 and a loss of $0.04 per share in 2020, Wall Street expects earnings of $3.62 per share this year and $5.48 per share in 2022. 

The current pullback means the stock is not buyable at the moment. It’s currently forming a flat base, which means its peak-to-trough correction is less than 15%. However, if it slides further in the coming sessions, the base would garner a new characterization. If it undercuts its prior structure low of $167.86, that would restart the base count, which could be constructive in the long term.