Top picks from S&P: TRW Automotive
Higher global vehicle production should drive growth at this car parts manufacturer.
(This post is part of a special report featuring 7 Top Picks from S&P Capital IQ.)
By Efraim Levy, Capital IQ, The Outlook
Sector: Autos & Auto Parts
TRW Automotive (TRW) is among the world's largest suppliers of automotive systems and components to global vehicle manufacturers and related aftermarkets. The company is primarily a Tier-1 supplier, with approximately 86% of 2012 sales made directly to vehicle manufacturers.
TRW has four operating segments: chassis systems, occupant safety systems, automotive components and electronics. Chassis systems (63% of 2012 sales) sells products relating to steering, foundation brakes, brake control, and suspension.
Occupant safety systems (20%) focuses on the design, manufacture and sale of air bags, seat belts, safety electronics, steering wheels and security electronic systems.
Automotive components (11%) focuses on the design, manufacture and sale of body controls, engine valves and engineered fasteners and components. Electronics (6%) focuses on the manufacture of electronic systems and components for vehicles.
Sales in North America accounted for 36% of 2012 revenues, with Europe 43%, Asia 17%, and the rest of the world 4%. We forecast higher global vehicle production in 2013, with production trends varying by country. U.S. new light vehicle production should increase.
European production should decrease. We project higher production in Asia, despite a possible decline in Japan, and we expect improved U.S. automotive replacement parts market demand. We think demand for new commercial (heavy) trucks will rise again in 2013.
We think TRW will benefit from increasing long-term demand for automotive safety products. We project net margins of 5.1% in 2013.
Debt levels have been shrinking, and we expect TRW to use what we view as its strong cash flow for shareholder friendly actions, including a recent $1 billion share repurchase authorization that started in the fourth quarter. While we think a cash dividend initiation is possible in late 2013, we think 2014 is more likely.
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