We came across a bullish thesis on Aptiv PLC (APTV) on ValueInvestorsClub by afgtt2008. In this article we will summarize the bulls’ thesis on APTV. Aptiv PLC shares were trading at $81.42 when this thesis was published, vs. closing price of $69.08 as of Sept 9.
A technician working on an electric car surrounded by a variety of after-sales service components.
Aptiv offers a compelling investment opportunity by leveraging the current negative sentiment surrounding electric vehicles (EVs) while maintaining strong fundamentals in both traditional and EV markets. Despite the general market skepticism, Aptiv remains a key auto supplier in an oligopolistic industry, poised to generate significant returns. The company is trading at a relatively low valuation, less than 10 times its projected 2025 earnings, and has an under-levered balance sheet, making it an attractive investment at its current ~$80 per share price. Aptiv’s growth prospects are underscored by its substantial new business bookings, totaling around $33 billion, compared to its current revenue of $21 billion, indicating a strong pipeline for future growth. This growth is driven by increased EV penetration, which significantly boosts Aptiv’s content per vehicle. The company’s average content per EV is 2.5 times greater than that for internal combustion engine (ICE) vehicles, providing a considerable margin advantage. As EV adoption continues, every 2% increase in EV penetration could drive a 15% earnings growth for Aptiv, well ahead of the broader market.
Aptiv’s Signal and Power Solutions (SPS) segment, which constitutes 80% of its earnings, is pivotal to its growth strategy. This segment focuses on the design, manufacture, and assembly of electrical architectures for vehicles. As EVs become more prevalent, demand for these components grows, with Aptiv positioned to benefit significantly from its dominant role in this market. Furthermore, the company’s focus on smart vehicle architecture (SVA) positions it to capitalize on the shift toward software-defined vehicles, which require fewer wires but more advanced electrical components—Aptiv’s specialty. The company has already secured $10 billion in bookings for SVA-related content, highlighting its strong future growth prospects.
Aptiv is also poised to benefit from strategic capital allocation and shareholder returns. The company is exiting its loss-making joint venture with Hyundai, which should result in a higher EPS by 2025, and plans to return significant capital to shareholders through aggressive stock buybacks. Aptiv has already announced plans for $1.5 billion in buybacks for 2024 and has the capacity to repurchase more, given its low leverage. With anticipated cash flows and possible debt financing, Aptiv could retire nearly 20% of its current market cap through buybacks over the next 18 months.
Despite concerns around EV market sentiment, Aptiv remains a solid investment due to its strong position in a growing market, substantial new bookings, and strategic financial management. Should EV adoption accelerate, Aptiv’s valuation could rise considerably. Even in a slower EV adoption scenario, the current valuation offers a favorable entry point for a leading supplier with robust fundamentals and a clear growth trajectory.
Aptiv PLC is not on our list of the 31 Most Popular Stocks Among Hedge Funds. As per our database, 38 hedge fund portfolios held APTV at the end of the second quarter which was 38 in the previous quarter. While we acknowledge the potential of APTV as an investment, 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 as promising as APTV but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article was originally published at Insider Monkey.