A Trio of New Buys: Autos, Trucks and Parking Lots
10/02/2017 5:00 am EST
In his small cap focused advisory service, Upside, Richard Moroney looks at a trio of stocks involved in automotive-related niche markets—a supplier of drivetrains, an engine parts cleaner and an operator of parking facilities.
Founded in 1904, Dana (DAN) is a leading supplier of drivetrain systems and tire-pressure sensors. The company serves three core segments: Light vehicle (61% of 2016 sales), commercial (23%), and off-highway (16%).
Dana generated 47% of 2016 revenue outside the U.S., including 28% in Europe. Ford Motor (F) accounted for 22%. Improved efficiency, contributions from acquisitions, and solid internal growth should boost Dana’s profitability in coming years.
Analysts project growth of 18% in sales and 20% in per-share earnings this year. Profit estimates have risen 21% over the last 90 days, reflecting Dana’s outstanding operating momentum.
The company exceeded the consensus profit estimate in the last four quarters, by an average of $0.17, or 41%. Dana earns the maximum Quadrix Overall score of 100, with four category scores above 90.
At 10 times trailing earnings, shares trade below the median of 14 for S&P 1500 auto parts makers and below its own three-year average of 11.2. Dana is being initiated as a buy.
Through a network of 83 branches in 45 states, Heritage-Crystal Clean (HCCI) provides parts cleaning (for engines and machines), oil recycling, and industrial waste removal to roughly 107,000 client locations.
Customers included auto repair shops, manufacturers, and trucking firms. Healthy recurring revenue, improved cash flow, and a strong balance sheet bode well for growth. As a kicker, the company stands to benefit from clean-up efforts stemming from Hurricane Harvey.
At 28 times estimated current-year earnings, Heritage is not cheap. But per-share profits are expected to grow at an annualized rate of 19% over the next five years.
Also, the stock is considerably cheaper versus peers relative to sales and free cash flow. The PEG ratio (forward P/E divided by projected long-term growth) of 1.4 is below the industry median of 2.5 and ranks among the cheapest one-third of stocks in Quadrix.
For 2017, the consensus calls for per-share earnings to more than double to $0.70. Heritage is being initiated as a buy.
A leading operator of parking facilities, SP Plus (SP) manages roughly 3,600 lots in more than 350 cities. The company has some 2.0 million parking spaces, up from 1.2 million at the end of 2011.
A growing transportation business serves 73 airports and carries more than 40 million passengers annually. SP has grown revenue, earnings, and cash flow in recent quarters, reflecting an expanding footprint, improved cost control, and fatter profit margins. The stock earns a 97 Overall score, paced by a 95 in Performance.
SP shares have advanced 33% so far in 2017. We see plenty more upside, reflecting strong growth and a reasonable valuation.
Profit estimates have drifted higher in the past 90 days, fueled by impressive June-quarter earnings. Per-share profits surged 56% and topped the consensus by 26%.
The consensus calls for per-share profits to rise 28% this year, versus an average of 6% for S&P 600 stocks. SP is being initiated as a buy.