The U.S. auto sales bounced back in 2023, marking a return to normalcy for the industry that has been on a roller coaster ride since the pandemic. Further, the widespread adoption of electric vehicles and rapid technology integration should fuel the industry’s long-term outlook.
Given the industry’s bright prospects, fundamentally sound auto stocks REV Group, Inc. (REVG) could be an ideal addition to your portfolio, while it seems prudent to wait for a better entry point in Ford Motor Co. (F). However, struggling Tesla, Inc. (TSLA) is best avoided now.
The U.S. automotive industry witnessed a solid rebound in 2023, with several car companies posting double-digit sales gains, concluding the sector’s best year since the pandemic. Robust auto sales were driven by pent-up demand and greater availability on dealership lots.
As per an estimate from research firm Wards Intelligence, industrywide sales of new cars in the U.S. totaled 15.5 million vehicles last year, an increase of 12.4% year-over-year.
According to a report by Market Research Future, the global automotive market is predicted to reach $6.07 trillion by 2030, growing at a CAGR of 6.9%. Increasing demand for high-end passenger vehicles and rapid urbanization will boost the market’s growth.
Rising fuel prices and the adverse impact of conventional gasoline vehicles on the environment have led to a significant shift to alternative fuel vehicles. This has led to the emergence and prevalence of Electric Vehicles (EVs). EV sales are projected to hit a new U.S. record in 2023.
EV sales are anticipated to reach a record 9% of all passenger vehicles in the U.S. last year, as per Atlas Public Policy. For the first time, more than 1 million EVs were sold in the country in one calendar year, reaching somewhere between 1.3 million and 1.4 million cars, the research firm forecasts.
As per Statista, the electric vehicle market in the U.S. is projected to grow at a CAGR of 18.2% during the forecast period (2024-2028), resulting in a market volume of $161.60 billion by 2028. Several government incentives and environmental consciousness among consumers will propel the market’s prospects.
Digital technologies such as Artificial Intelligence (AI), machine learning, blockchain, big data & analytics, Human-Machine Interfaces (HMI), and the Internet of Things (IoT) continue to revolutionize the auto industry by streamlining the operations, enhance the customer experience, and boost operational efficiencies.
In light of these favorable trends, let’s look at the fundamentals of the three Auto & Vehicle Manufacturer stocks, beginning with number 3.
Stock to Sell:
Stock #3: Tesla, Inc. (TSLA)
TSLA designs, develops, manufactures, leases, and sells electric vehicles (EVs), and energy generation and storage systems internationally. The company operates through two segments: Automotive; and Energy Generation and Storage. It also offers non-warranty after-sales vehicles, used vehicles, retail merchandise, and vehicle insurance services.
Tesla’s Cybertruck grapples with manufacturing challenges, sparking worries for the auto company. There are persistent challenges in ramping up the production of its 4680 batteries, consequently causing delays in the manufacturing of products, including the Cybertruck and Semi.
TSLA CEO Elon Musk accepted that overcoming these hurdles will require a span of 12 to 18 months, involving significant effort and dedication. Also, he indicated that Tesla is unlikely to achieve an annualized production rate of 250,000 Cybertrucks until sometime in 2025.
TSLA’s trailing-12-month gross profit margin of 19.81% is 44% lower than the industry average of 35.38%. Also, the stock’s trailing-12-month levered FCF margin of 1.68% is 69.6% lower than the industry average of 5.34%.
In terms of forward non-GAAP P/E, TSLA is trading at 74.92x, 378% higher than the industry average of 15.67x. Likewise, the stock’s forward Price/Sales multiple of 7.79 is 763.7% higher than the industry average of 0.90. Also, its forward Price/Cash Flow of 59.46x is significantly higher than the industry average of 9.76x.
During the third quarter that ended September 30, 2023, TSLA’s revenue from Automotive leasing decreased 21.2% year-over-year to $489 million. Its gross profit declined 22.4% year-over-year to $4.18 billion. The company’s adjusted EBITDA came in at $3.76 billion, a decline of 24.4% from the previous year’s period.
In addition, the company’s non-GAAP net income and EPS attributable to common stockholders came in at $2.32 billion and $0.66, down 36.6% and 37.1% from the prior year’s quarter, respectively. Its free cash flow declined 74.3% year-over-year to $848 million.
Analysts expect TSLA’s EPS for the fourth quarter (ended December 2023) to decrease 38.2% year-over-year to $0.74. For the fiscal year 2023, its EPS is expected to decline 21.8% year-over-year to $3.18. Further, the company has missed the consensus revenue estimates in three of the trailing four quarters, which is disappointing.
The stock has plunged 15.8% over the past six months to close the last trading session at $237.93.
TSLA’s bleak outlook is reflected in its POWR Ratings. The stock has an overall rating of D, which translates to a Sell in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, each weighted to an optimal degree.
The stock has a D grade for Growth, Stability, and Sentiment. Within the Auto & Vehicle Manufacturer industry, TSLA is ranked #39 of 52 stocks.
Click here to access additional ratings of TSLA for Value, Quality, and Momentum.
Stock to Hold:
Stock #2: Ford Motor Co. (F)
F develops, delivers, and services a variety of Ford trucks, commercial cars and vans, sport utility vehicles, and Lincoln luxury vehicles globally. The company operates through Ford Blue, Ford Model e, and Ford Pro; Ford Next; and Ford Credit segments. It also engages in vehicle-related financing and activities to and through automotive dealers.
On December 7, 2023, Ford and Resideo Technologies, Inc. (REZI), a global provider of solutions for home comfort, First Alert security and safety, launched a joint simulation project to explore vehicle-to-home (V2H) energy management called the “EV-Home Power Partnership,” designed to explore the potential of EV batteries to support optimal home energy management.
The project might substantially help customers save money on monthly electric bills.
On December 5, F’s commercial division, Ford Pro, and Xcel Energy Inc. (XEL), a national leader in clean energy, announced a unique collaboration to harness the deployment of 30,000 electric vehicle (EV) charging ports in Xcel Energy service territories across the U.S.
The collaboration is expected to scale EV adoption and grow access to charging infrastructure for business fleets across Xcel Energy’s service areas across the nation.
F’s trailing-12-month ROCE of 14.27% is 25.1% higher than the 11.40% industry average. However, the stock’s gross profit margin and EBIT margin of 10.41% and 5.97% are lower than the respective industry averages of 35.38% and 7.58%.
In terms of forward non-GAAP P/E, F is trading at 6.26x, 60.1% lower than the industry average of 15.67x. Likewise, the stock’s forward Price/Sales multiple of 0.28 is 68.9% lower than the industry average of 0.90. But its forward EV/EBIT of 15.59x is 11.3% higher than the industry average of 14.01x.
For the third quarter that ended September 30, 2023, F’s total revenues grew 11.2% year-over-year to $43.80 billion. Its operating income increased 124% from the year-ago value to $1.13 billion. The company’s adjusted EBIT for the third quarter surged 21.9% year-over-year to $2.20 billion.
In addition, F’s net income came in at $1.17 billion, compared to a net loss of $930 million during the third quarter of 2022. Its adjusted EPS was $0.39, up 30% from the prior year’s quarter. However, the company’s adjusted free cash flow came in at 1.2 billion, down 66.7% year-over-year.
Analysts expect F’s revenue for the fiscal year 2023 (ended December 2023) to grow 12% from the prior year to $166.80 billion. However, the company’s EPS for the same period is expected to decline marginally year-over-year to $1.87.
For the fiscal year 2024, the company’s revenue is estimated to grow 6.2% year-over-year to $177.11 billion; however, the consensus EPS estimate of $1.78 for the ongoing year indicates a decline of 4.8% year-over-year.
Over the past month, F’s stock has gained 9.2% to close the last trading session at $11.68. However, the stock has declined 23.9% over the past six months.
F’s POWR Ratings reflect its neutral prospects. The stock has an overall grade of C, translating to a Neutral in our proprietary rating system.
F has a C grade for Growth, Momentum, and Quality. It is ranked #35 among 52 stocks within the Auto & Vehicle Manufacturers industry.
To see the other ratings of F for Sentiment, Value, and Stability, click here.Top of Form
Stock #1: REV Group, Inc. (REVG)
REVG designs, manufactures, and distribution of specialty vehicles and related aftermarket parts and services internationally. It operates through three segments: Fire & Emergency; Commercial; and Recreation. It provides products via Emergency One, Ferrara, Magellan, Collins Bus, Holiday Rambler, American Coach, and Fleetwood RV brands.
On December 7, Fleetwood Family of brands, leading manufacturers in the recreational vehicle industry and part of REVG, launched the Fleetwood® Xcursion™ and Holiday Rambler® Xpedition™ Class B Motorhomes.
The new Class B products will create a new standard for outdoor adventure enthusiasts while providing exceptional versatility to cater to the diverse needs of customers. The new launches might extend the company’s market reach and drive its growth.
On December 13, REVG declared a quarterly cash dividend of $0.05 per share of common stock, payable on January 12, 2024, to the shareholders of record on December 26, 2023. REVG pays an annual dividend of $0.20, which translates to a yield of 1.19% at the current share price.
Moreover, the company’s dividend payouts have increased at a CAGR of 26% over the past three years.
In terms of forward EV/Sales, REVG is trading at 0.44, 74.7% lower than the industry average of 1.75. The stock’s forward EV/EBIT multiple of 8.23 is 49.2% lower than the industry average of 16.18. In addition, its forward Price/Sales of 0.38 is 73.3% lower than the industry average of 1.42.
During the fourth quarter that ended on October 31, 2023, REVG’s net sales increased 11.2% year-over-year to $693.30 million, while its gross profit grew 42.9% from the year-ago value to $95.50 million. The company’s operating income was $45.10 million, up 151.9% from the prior year’s quarter.
Furthermore, the company’s net income was $29.7 million, or $0.53 per common share, compared to $8.7 million, or $0.28 per common share a year earlier, respectively. Its adjusted EBITDA rose 61.2% year-over-year to $54 million.
The company announced its guidance for fiscal year 2024, affirming net sales between $2.60 billion and $2.70 billion. The company expects its net income to range between $71 million and $90 million. Further, its adjusted EBITDA is estimated to be from $165 million to $185 million.
Street expects REVG’s EPS for the second quarter (ending April 2024) to grow 20.9% year-over-year to $0.42. For the fiscal year ending October 2024, the company’s EPS is estimated to increase by 15.4% from the year-ago value to $1.57. Moreover, the company surpassed the consensus revenue and EPS estimates in each of the trailing four quarters.
Shares of REVG have surged 30.2% over the past six months and 28.9% over the past year to close the last trading session at $16.84.
REVG’s sound fundamentals are reflected in its POWR Ratings. The stock has an overall rating of A, which translates to a Strong Buy in our proprietary rating system.
REVG has a B grade for Growth, Value, Stability, and Quality. It is ranked first among 52 stocks in the Auto & Vehicle Manufacturers industry.
In addition to the POWR Ratings we’ve stated above, we also have REVG ratings for Momentum and Sentiment. Get all REVG ratings here.
What To Do Next?
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TSLA shares were unchanged in premarket trading Friday. Year-to-date, TSLA has declined -4.25%, versus a -1.69% rise in the benchmark S&P 500 index during the same period.
About the Author: Mangeet Kaur Bouns
Mangeet’s keen interest in the stock market led her to become an investment researcher and financial journalist. Using her fundamental approach to analyzing stocks, Mangeet’s looks to help retail investors understand the underlying factors before making investment decisions.
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