1. PHINIA Inc. (NYSE:PHIN)
Number of Hedge Fund Holders: 37
PHINIA, Inc. (NYSE:PHIN) is a new company that came into being as a spin off from BorgWarner’s Fuel Systems and Aftermarket segments in 2023. The company has three main business segments namely Fuel Systems, Aftermarket, and Innovation. The Fuel Systems segment engages in designing and manufacturing of integrated components such as pumps, fuel injection systems, and engine control modules. These technologies increase efficiency and reduce emissions in vehicles. The Aftermarket segment of the company manufactures and sells products including starters and alternators. Lastly, the Innovation segment involves research and development of alternative fuel technologies and advanced engineering for a carbon free automotive industry. PHINIA, Inc. (NYSE:PHIN) sells its products to OEMs in the automotive industry and for other industrial applications.
The competitive edge of the company originates from over 100 years experience of BorgWarner in developing internal combustion engine products and its strong brand recognition. The company posted a profitable second quarter since its inception as a stand alone entity despite slower market conditions which affected its adjusted sales. PHINIA, Inc. (NYSE:PHIN) generated $863 million in adjusted sales slightly lower than the previous quarter due to soft market conditions. However, regardless of a slight decrease in sales, it maintained its profit margins and generated $117 million in adjusted EBITDA, with margins at 13.6% during the quarter. Margins were relatively strong for its Aftermarket and Fuel Systems segments, at 15.1% and 10.%, respectively, with the Fuel System segment benefiting from retroactive customer recoveries.
The company has done well to maintain a strong balance sheet during its transition period from its parent company to a stand alone entity. It has exited all transition service agreements and contract manufacturing agreements and is now completely independent. Despite the transition, the company ended the quarter with $339 million in cash on the balance sheet and generated an adjusted free cash flow of $108 million during the quarter, that too after returning $180 million to shareholders through dividends and share purchases.
Is PHINIA, Inc. (NYSE:PHIN) a good investment?
It’s too soon to say anything. However, the company has demonstrated its ability to generate solid margins amidst soft market conditions and management plans to leverage its brand and capabilities to drive long-term growth. Moreover, the company is also investing in hydrogen and alternative fuel products, which is in-line with the market trend. This along with a strong balance sheet as an independent company offers room for growth. The company presents an attractive entry point for investors as it is trading at 11 times its forward earnings, which is a 26% discount to its sector. Wall Street is also bullish on PHIN and 2 analysts hold a Strong Buy rating on the stock. The average price target of $52.5 represents an upside of 23.59% from current levels.
Overall, PHIN was held by 37 hedge funds that disclosed positions worth $200 million, at the close of Q1 2024.
While we acknowledge the potential of PHINIA, Inc. (NYSE:PHIN) to grow, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than NVIDIA but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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