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Auto Stock Roundup: Acquisition News of MTOR and TEN Draw the Most Attention

The multibillion-dollar takeover news of the auto parts suppliers Meritor MTOR and Tenneco TEN made big headlines last week. In two landmark deals that have jolted the industry, engine maker giant Cummins CMI is set to acquire Meritor for $3.7 billion, while Apollo Funds will buy Tenneco for $7.1 billion. Apart from the announcement of these blockbuster deals, earnings release by used vehicle e-retailer Carvana CVNA and automotive replacement parts manufacturer Standard Motor SMP also made to the top stories.

Meanwhile, the European Automobile Manufacturers Association released January 2022 data for commercial car registrations last week. The European Union (EU) commercial vehicle market contracted 11.1% in January to 125,292 units, representing the seventh straight month of decline. The decline largely stemmed from sluggish sales of new vans. Three of the four key EU markets — namely Spain, France and Germany — witnessed a decline, with Spain recording the steepest drop of 20.1% year over year. While registrations in France and Germany inched down 17% and 3.1%, respectively, Italy’s sales remained almost unchanged with the comparable year-ago period.

Last Week’s Top Stories

1. Cummins announced that it will acquire Meritor in a $3.7-billion deal to reinforce its electric and hybrid vehicle parts offerings. The transaction is subject to customary closing conditions and applicable regulatory approvals as well as Meritor shareholder approval. It is expected to close by the end of the calendar year.

Meritor’s market repute will empower Cummins to be a provider of integrated powertrain solutions across combustion and electric power applications. By aiding Meritor’s investment in electrification and integrating development within the New Power business, Cummins seeks to offer market-leading solutions. The acquisition is expected to immediately add to Cummins’ adjusted earnings per share and generate annual pre-tax run-rate synergies of $130 million in the third year after closing.

2. Tenneco stated that it is soon to be acquired by Apollo Funds, an affiliate of Apollo Global, in a transaction having an estimated valuation of $7.1 billion, including debts. The partnership will better serve Original Equipment Market or OEM and aftermarket blue-chip customers globally, in addition to maximizing value for shareholders. The transaction is expected to close in second-half 2022, subject to customary closing conditions, including approval by Tenneco shareholders and receipt of regulatory approvals.

Meanwhile, TEN also announced fourth-quarter 2021 results. It incurred an adjusted loss of 11 cents per share for fourth-quarter 2021 against the Zacks Consensus Estimate of earnings of 16 cents. The bottom line slipped 107% from the year-ago earnings of $1.68 a share. Revenues of $4,389 million topped the Zacks Consensus Estimate of $4,186.2 million but declined around 5.6% year over year.

3. Carvana incurred a wider-than-expected fourth-quarter 2021 loss of $1.02 per share. In the year-ago quarter, it incurred a loss of 41 cents a share. The Zacks Consensus Estimate was pegged at a loss of 79 cents. The underperformance stemmed from lower-than-expected gross profit per unit from ‘used vehicle’ sales. Meanwhile, fourth-quarter revenues of $3,753 million outpaced the Zacks Consensus Estimate of $3,562.4 million and surged 105.5% year over year.

CVNA had cash/cash equivalents and long-term debt of $403 million and $3,208 million, respectively. Carvana anticipates supply chain disruptions from the Omicron variant, severe winter storms and the recent rapid increase in short-term interest rates to weigh on first-quarter 2022 total gross profit per unit and selling, general & administrative cost per retail unit sold, thereby resulting in an expected EBITDA margin loss in the mid-single-digit range.

4. Standard Motor reported fourth-quarter 2021 adjusted earnings of 90 cents per share, beating the Zacks Consensus Estimate of 66 cents. The bottom line, however, declined from the prior-year quarter’s $1.08 per share. Total revenues jumped 9.6% year over year to $309.9 million, surpassing the Zacks Consensus Estimate of $286.3 million. 

SMP approved a dividend increase from 25 cents to 27 cents per share, payable on Mar 1, 2022, to stockholders of record on Feb 15, 2022. Standard Motor had cash and cash equivalents of $21.7 million as of Dec 31, 2021 compared with $19.5 million in the corresponding period of 2020. Long-term debt was $21,000 compared with $97,000 recorded as of Dec 31, 2020.

Standard Motor currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Price Performance

The following table shows the price movement of some of the major auto players over the past week and six-month period.

Image Source: Zacks Investment Research

What’s Next in the Auto Space?

Industry watchers will keep a tab on U.S. vehicle sales for the month of February. Also, stay tuned for the usual news releases by auto companies over the week.

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Cummins Inc. (CMI): Free Stock Analysis Report
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