In the past six months, insiders of TRW Automotive Holdings Corp. (NYSE:TRW) have sold more than 10.3 million shares of the company in 13 transactions. Notably, its Chairman and CEO John Plant has sold more than 101,000 shares of the company since the end of Feb. 24, with the total transaction worth of around $5.9 million. The Blackstone Group L.P. (NYSE:BX) also sold more than 9.2 million shares in the company for nearly $545 million. Should we turn bearish about this company along with these insiders? Let’s take a closer look and find out.
Business snapshot
TRW Automotive Holdings Corp. (NYSE:TRW) is one of the largest global suppliers of automotive systems, modules and components to global automotive OEMs and related aftermarkets, operating in four main business segments: Chassis Systems, Occupant Safety Systems, Electronics and Automotive Components. The majority of its revenue, $10.32 billion, or 62.8% of the total 2012 revenue, was generated from the Chassis Systems segment, while the Occupant Safety Systems segment ranked second with $3.28 billion in revenue, or 20% of the total sales, while the Electronics and Automotive Components segments generated $1 billion and $1.8 billion in revenue, respectively.
In terms of geographical regions, TRW derived the majority of its revenue, 42.5% of the total revenue, from Europe, while North America was the second biggest revenue contributor, accounting for 36.1% of the total sales. The company had quite a concentrated base of customers that are automotive OEMs. The four biggest OEMs customer groups are Volkswagen (23.5% of sales), Ford Motor Company (NYSE:F) (17.6%), Chrysler (10.4%), and General Motors Company (NYSE:GM) (10%).
Cash generation with reasonable leverage
Since 2009, TRW Automotive Holdings Corp. (NYSE:TRW) has experienced a decent growth in both revenue and earnings. Its revenue increased from $11.6 billion in 2009 to $16.4 billion in 2012, while the net income shot up significantly from $55 million to more than $1 billion during the same period. In 2012, the operating cash flow was $956 million and the free cash flow was $333 million. TRW employs a reasonable amount of leverage in its operations. As of December 2012, it had nearly $3.6 billion in total stockholders’ equity, $1.22 billion in cash and around $1.34 billion in both long and short-term debt. In addition, it also recorded nearly $1.3 billion in pensions and other benefits.
Peer comparison
What makes me interested is the company’s low valuation. At around $55 per share, TRW Automotive Holdings Corp. (NYSE:TRW) is worth nearly $6.6 billion on the market. The market values TRW at only 4.6 times EV/EBITDA. Compared to its peers, including Delphi Automotive PLC (NYSE:DLPH) and Autoliv Inc. (NYSE:ALV), TRW has the cheapest valuation. Autoliv, at $68 per share, has a total market cap of nearly $6.5 billion. It is valued a bit more expensively than TRW at 5.85 times EV/EBITDA. The biggest company among the three is Delphi, with around $13.6 billion in total market cap. At around $43 per share, Delphi has the most expensive valuation at nearly 7 times EV/EBITDA.
Indeed, Delphi Automotive PLC (NYSE:DLPH) seems to deserve the highest valuation due to its highest operating margin and highest return on invested capital. Delphi’s operating margin is the highest among the three at 10.7%, while the operating margin of Autoliv is nearly 9.5%. TRW generates the lowest operating margin among the three, at only 7.15%. The return on invested capital of Delphi is nearly 22.4%, while the ROIC of TRW is around 18.94%. Autoliv generates the lowest return on invested capital at only 10.8%.
Income investors might like Autoliv the most due to its highest dividend yield of 2.9%. Delphi Automotive PLC (NYSE:DLPH) only pays investors dividends with a yield of 1.6%, whereas TRW does not pay any dividend.
My Foolish take
With a global manufacturing footprint, long-standing customer relationships with big OEMs customers, consistent cash generation and a low valuation, TRW Automotive Holdings Corp. (NYSE:TRW) could be a good stock to hold in a long run for investors.
The article What Should You Do With TRW After Huge Insider Selling? originally appeared on Fool.com and is written by Anh HOANG.
Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.
