Aptiv Has High Growth Potential From Vehicle Electrification, Digitization, and Autonomous Driving

Senior Equity Analyst

Richard Hilgert

Revenue segments as reported by the company.

Signal and Power Solutions

Advanced Safety and User Experience

Eliminations and Other

Revenue Segments

Gross Profit, Operating Income, and Net Income as a percentage of Revenue

Gross Margin

Operating Margin

Profit Margin

Margins

An operating expense is an expense a business incurs through its normal business operations. Often abbreviated as OPEX.

Selling, general and administrative

Amortization

Restructuring

Gain on autonomous driving joint venture

Operating Expenses

Year over year growth in Revenue and Operating Expenses.

Revenue Y/Y

OpEx Y/Y

Growth

Shares outstanding refer to a company's stock currently held by all its shareholders, including share blocks held by institutional investors and restricted shares owned by the company's officers and insiders.

Outstanding Shares

Market Cap

Also known as Price/Sales Ratio. Calculated using Average market cap for the quarter / Annualized quarterly revenue.

Revenue Multiple

We expect Aptiv's average yearly revenue growth to exceed average annual growth in global light-vehicle demand by high-single-digit to low-double-digit percentage points. The company provides automakers with components and systems that are in high demand from consumers and that government regulation requires to be installed. Aptiv's high-growth technologies include advanced driver-assist systems, autonomous driving, connectivity, data services, and high-voltage electrical distribution systems for hybrids and battery electric vehicles.

In our opinion, Aptiv’s ability to regularly innovate and commercialize new technologies bolsters sales growth, margin, and return on investment. A global manufacturing presence enables Aptiv to serve customers around the world, capitalizing on the economies of scale inherent in automakers' plans to use more common vehicle platforms. Lean manufacturing discipline and a low-cost country footprint enable more favorable operating leverage as volume increases.

Aptiv enjoys relatively sticky market share, supported by highly integrated customer relationships and long-term contracts. The design phase of a vehicle program can last between 18 months and three years depending on the complexity and extent of the model redesign. The production phase averages between five and 10 years. Engineering and design for the types of products that Aptiv provides necessitate highly integrated, long-term customer relationships that are not easily broken by competitors' attempts at market penetration.

New Car Assessment Programs, or NCAPs, are used by governments around the world to provide an independent vehicle safety rating. Legislators, especially in the United States and in Europe, have set NCAP guidelines that will progressively require the addition of ADAS features as standard equipment through the end of this decade. If automakers intend to achieve a 4- or 5-star safety rating for their vehicles, some ADAS features must be part of that vehicle's standard equipment to even qualify for certain rating levels.

Business Strategy & Outlook

We have assigned Aptiv a narrow economic moat rating. Intangible assets and switching costs (and, to a lesser extent, cost advantage) are the sources from which the company derives its economic moat. The intangible asset moat source flows from a product pipeline continuously filled with intellectual property development and the ability to commercialize on these new technologies, as well as contractual long-term, highly integrated engineering relationships between Aptiv and automaker customers. Contractual supply agreements, which include vehicle development, last for six years on the low side and 14 years on the high side.

Steep switching costs result from incremental engineering, development, and tooling costs; the need to relocate or even repurchase large, heavy industrial equipment; the risk that the automaker's assembly line may be shut down during a switch; the lengthy time to develop the competing supplier's product to customer specifications; and preproduction validation to ensure process and product integrity.

Consequently, it is more likely than not that Aptiv will continue generating economic profits for the next 10 years, excluding cyclical downturns, such as the current macroeconomic environment induced by the coronavirus. While automakers’ increasing global overcapacity is an identifiable, significant, and growing threat to the intangible asset moat source, there is no immediate substantial risk of major value destruction. Because of the duration of long-term contractual agreements with its automaker customers, we think Aptiv is more likely than not to create economic value over the next 10 years. However, we cannot say the same for a 20-year period, which is requisite for a wide economic moat rating.

Aptiv's intangible asset moat source is supported by a diversified customer base that enables optimal pricing for new technologies, as well as a diversified geographic footprint that provides a buffer to any single geographic region's revenue cyclicality and enables participation in customers' global vehicle architectures. In our view, the extent of Aptiv’s customer base supports the company’s ability to optimize pricing of new innovations. Long-term contracts that include both development and production, as well as high customer switching costs, promote sticky market share for vehicular electrical and electronic products. For the life of a vehicle program, Aptiv collaborates extensively with customer engineers during the development and the production phase, supporting intangible asset and switching cost moat sources in between contractual vehicle programs.

A single innovation in a highly competitive industry represents a temporary advantage at best, which by no means creates an economic moat, as competition can quickly adapt to (or in some instances reverse-engineer) a competing technology. On the other hand, continuous technical innovation creates a stream of competitive advantages, resulting in moderate pricing power. Aptiv boasts staff of roughly 22,000 scientists, engineers, and technicians in 11 major technical facilities around the world. Approximately 9,500 active patents and protective rights emphasize the company's ability to develop technologies that address industry demand for increased vehicular electrical, electronics, and safety content.

Some of Aptiv’s patent-protected technologies include autonomous driving technologies, sensors, domain controllers, smart junction boxes, connectors, 3D display panels, and related algorithms. While patent protection may not completely deter a competitor, as product solutions sometimes have multiple engineering possibilities, the possession of patented technologies makes competitors’ task of engineering an alternate solution more difficult. Aptiv also actively seeks collaborative technology partnerships; in 2020, it partnered with Hyundai to form a joint venture called Motional to develop autonomous driving systems.

Original equipment manufacturers are willing to pay a premium to vendors for technology that differentiates automakers' vehicles, reduces vehicle weight, improves fuel efficiency, reduces emissions, improves safety, or lowers costs. However, a single technological innovation does not make a moat. Consistent investment in research and development of products and processes, pumping a continuous flow of patents, along with the ability to commercialize innovations, creates a high-pressure pipeline that flows into an intangible asset economic moat and fuels pricing power.

Once an OEM customer and Aptiv initiate the development phase of a vehicle program, OEM switching costs quickly begin to accrue, especially when a complex, highly engineered, critical vehicular system is being supplied. Costs for switching to another supplier include but are not limited to: the substantial lead time and investment to develop and validate a new system; the potential for production disruptions during transition; and the cost of moving large, expensive heavy equipment and tooling in instances where the customer is the owner. In cases where the supplier owns the tooling and equipment, the new supplier would need to develop new tooling and buy the equipment for their own manufacturing process. For Aptiv, software ownership also complicates a customer’s ability to switch to a competing supplier. Adding to the expense, before the vendor begins delivering parts for a customer’s vehicle program, the supplier would need to complete a preproduction validation process.

As part of industry contractual supply agreements, most vendors are obligated to reduce the price of their products annually by 3%-5% on average. This contractual dynamic results in suppliers’ focus on lean manufacturing practices like Six Sigma, kaizen, and kanban, just to partially offset potential margin erosion. Consistent product and process technological advancement enables more favorable pricing relative to many automotive industry suppliers that lack the capability or the desire to innovate. Aptiv management says its annual contractual price declines range between 1.5% and 1.8%, below the industry average, providing contractual pricing evidence in support of our narrow moat rating.

Aptiv continually assesses its manufacturing footprint, seeking cost advantages whenever possible. The company currently operates 131 plants and 11 major technical centers in 46 countries, but management emphasizes rotation of manufacturing facilities toward "best-cost countries." In our view, the strategic positioning of manufacturing facilities enables Aptiv a more favorable cost structure. The combination of lean manufacturing practices with best-cost locations provides a competitive cost advantage that supports continued economic profit generation.

Narrow

Economic Moat

Aptiv

Aptiv Plc is an global technology and mobility architecture company, which engages in the design and manufacture vehicle components. It operates through the Signal and Power Solutions, and Advanced Safety and User Experience segments. The Signal and Power Solutions segment includes complete electrical architecture and component products. The Advanced Safety and User Experience segments consists of vehicle technology and systems integration expertise in advanced safety, user experience and connectivity, and security solutions, as well as advanced software development and autonomous driving technology. The company was founded in 1994 and is headquartered in Dublin, Ireland.

Earnings data Q1 2024

Revenue

Cost of revenue

Gross profit

Operating expenses

SG&A

Other

Operating income

EBITDA

Net income

Earnings per share

Total assets

Current assets

Cash & equivalents

Receivables

Inventory

Non-current assets

Net PPE

Intangibles

Total liabilities

Current liabilities

Short term debt

Income tax payable

Non-current liabilities

Long-term debt

Total equity

Stockholders equity

Minority interest

Total liabilities & equity

Total debt

Net debt

Book value per share

Cash from operations

Funds from operations

Change in working capital

Cash from investing

Capital expenditure

Purchase/sale of investments

Purchase/sale of business

Other sources

Cash from financing

Change in stock

Change in debt

Cash dividends paid

Cash from other sources

Net change in cash

Free cash flow

Aptiv Plc is a technology and mobility architecture company, which engages in the business of designing and manufacturing vehicle components; providing electrical, electronic, and active safety technology solutions to the global automotive and commercial vehicle markets; and creating the software and hardware foundation for vehicle features and functionality. It operates under the Signal and Power Solutions; and Advanced Safety and User Experience segments. The Signal and Power Solutions segment focuses on the design, manufacture, and assembly of the vehicle's electrical architecture including engineered component products, connectors, wiring assemblies, harnesses, cable management, electrical centers, hybrid high voltage, and safety distribution systems. The Advanced Safety and User Experience segments is involved in critical technologies and services to enhance vehicle safety, security, comfort, and convenience including sensing and perception systems, electronic control units, multi-domain controllers, vehicle connectivity systems, cloud-native software platforms, application software, autonomous driving technologies, and end-to-end DevOps tools. The company was founded in 1994 and is headquartered in Dublin, Ireland.

Ferrari

Rivian Automotive

Ferrari simply isn't like traditional auto investments. It's far superior.

3 Overlooked Auto Winners in a Rapidly Evolving Industry

Hasbro

Pfizer

Evercore

Lazard

Match Group

Newmont Mining

Block

Some of the stocks dumped as funds do tax-loss selling can be attractive buys.

Eight Beaten-Down Stocks Including Pfizer and Hasbro That Look Like Bargains

Air Products and Chemicals

Microsoft

The term ESG stocks has become synonymous with doing good. But given that ‘good' means different things to different people.

3 ESG  Stocks to Profit While Making a Positive Impact

Aptiv reported 3Q23 revenue of $5.114 billion, with growth in North America, Europe, and China. I believe the stock price drop is an overreaction. The slowdown in GOM was temporary and influenced by timing-related factors.

Aptiv: Share Price Drop Is An Overreaction

Aptiv's full-year guidance stays intact despite the recent United Auto Workers strike. APTV is poised for margin expansion in the years ahead, but the current sell-side consensus profitability forecasts are below the company's targets. I upgrade my rating for APTV to a Buy, after considering the company's unchanged FY 2023 guidance, and its profitability improvement potential for the long run.

Aptiv: Spotlight On UAW Strike And Margin Expansion (Rating Upgrade)

Aptiv's (APTV) smart architecture provides a competitive advantage and will likely help it continue gaining market share.

Why You Should Hold Aptiv (APTV) Stock in Your Portfolio Now

DUBLIN , Nov. 16, 2023 /PRNewswire/ -- Aptiv PLC (NYSE: APTV), a global technology company focused on making mobility safer, greener and more connected, will present at the Barclays Global Automotive and Mobility Tech Conference, November 30 at 11:30 a.m. Eastern Time.

Aptiv to Present at Barclays Global Automotive and Mobility Tech Conference

Apollo Global Management

Capri Holdings Ltd

HCA Healthcare

Zillow

In 2011, about 170 companies had an initial public offering (IPO) in the United States.

5 Best IPOs of 2011

Aptiv's (APTV) third-quarter 2023 earnings and revenues surge year over year.

Aptiv's (APTV) Q3 Earnings Beat Estimates, Increase Y/Y

Aptiv PLC (NYSE:APTV ) Q3 2023 Earnings Conference Call November 2, 2023 8:00 AM ET Company Participants Jane Wu - VP, IR & Corporate Development Kevin Clark - Chairman & CEO Joe Massaro - CFO & SVP, Business Operations Conference Call Participants Joe Spak - UBS Rod Lache - Wolfe Research John Murphy - Bank of America Adam Jonas - Morgan Stanley Chris McNally - Evercore Itay Michaeli - Citi Emmanuel Rosner - Deutsche Bank Dan Levy - Barclays Operator Please standby. Good day, and welcome to the Aptiv Q3 2023 Earnings Call.

Aptiv PLC (APTV) Q3 2023 Earnings Call Transcript

Although the revenue and EPS for Aptiv PLC (APTV) give a sense of how its business performed in the quarter ended September 2023, it might be worth considering how some key metrics compare with Wall Street estimates and the year-ago numbers.

Compared to Estimates, Aptiv PLC (APTV) Q3 Earnings: A Look at Key Metrics

Auto parts supplier Aptiv on Thursday warned of a $180 million sales hit in 2023 from the United Auto Workers (UAW) union strike against the Detroit Three automakers.

Aptiv says UAW strikes to impact FY sales by $180 mln

Strong Revenue Growth and Record Adjusted Operating Earnings DUBLIN , Nov. 2, 2023 /PRNewswire/ -- Aptiv PLC (NYSE: APTV), a global technology company focused on making mobility safer, greener and more connected, today reported third quarter 2023 U.S. GAAP earnings of $5.76 per diluted share. Excluding special items, third quarter earnings totaled $1.30 per diluted share.

Aptiv Reports Third Quarter 2023 Financial Results

Aptiv (APTV) is seeing favorable earnings estimate revision activity and has a positive Zacks Earnings ESP heading into earnings season.

Is a Surprise Coming for Aptiv (APTV) This Earnings Season?

Aptiv's (APTV) third-quarter 2023 revenues are likely to have increased year over year.

Aptiv (APTV) to Report Q3 Earnings: What's in the Offing?

Aptiv PLC (APTV) possesses the right combination of the two key ingredients for a likely earnings beat in its upcoming report. Get prepared with the key expectations.

Aptiv PLC (APTV) Expected to Beat Earnings Estimates: Can the Stock Move Higher?

Aptiv PLC (APTV) has an impressive earnings surprise history and currently possesses the right combination of the two key ingredients for a likely beat in its next quarterly report.

Why Aptiv PLC (APTV) Could Beat Earnings Estimates Again

Chembio Diagnostics

BREA, Calif. , Oct. 17, 2023 /PRNewswire/ -- Life Science Outsourcing, Inc. ("LSO"), a premier contract manufacturer and value-added service provider for the medical device and life science sectors, announces the appointment of Neil A.

Life Science Outsourcing, Inc. Welcomes Neil A. Goldman as Chief Financial Officer

Marvell Technology

Thomson Reuters

Trane Technologies plc

The technology services sector thrived post-pandemic due to remote work adoption and advanced tech like 5G, blockchain, AI, and ML, fueled by rising data security concerns. TRI, MRVL, TT and APTV are likely to be gainers of the momentum.

4 Stocks From the Prospering Technology Services Market

DUBLIN , Sept. 29, 2023 /PRNewswire/ -- Aptiv PLC (NYSE: APTV), will release its third quarter 2023 financial results on November 2, and will hold an investor call the same day at 8:00 a.m.

Aptiv to Release Third Quarter 2023 Financial Results

Whether you're a value, growth, or momentum investor, finding strong stocks becomes easier with the Zacks Style Scores, a top feature of the Zacks Premium research service.

Here's Why Aptiv PLC (APTV) is a Strong Value Stock

General Motors

Stellantis N.V. 

The United Auto Workers (UAW) strike is expanding in a move that will surely hurt the U.S. economy and auto stocks as a whole. Investment bank Morgan Stanley (NYSE: MS ) recently estimated that a full month of lost automotive production would cost General Motors (NYSE: GM ), Ford Motor (NYSE: F ) and Stellantis (NYSE: STLA ) combined $7 billion to $8 billion in lost profits.

UAW Unrest: 3 Auto Stocks to Avoid as the Labor Strike Drags On

Aptiv's (APTV) "smart architecture" provides a competitive advantage and should help it continue gaining market share.

Aptiv (APTV) Stock Gains 17% in a Year: Here's What to know

Gentex

Lear

Magna International

Shares of auto parts makers traded mostly higher Friday, after the United Auto Workers union said it was expanding its strike to nearly 40 in-house auto-parts distribution centers of General Motors Co. GM, +0.50% and Stellantis N.V. STLA, +0.68%.

Auto parts makers' stocks rally, as UAW's expanded strike provides a boost

Albemarle

Amphenol

BorgWarner

TE Connectivity

Our theme of EV Supplier stocks has been a mixed performer this year, rising by about 4% year-to-date, compared to the S&P 500 which has gained over 17% over the same

News for Aptiv Stock (APTV)