Morningstar | Continental Is One of the Largest Auto-Parts Suppliers in the World
Considering industry trends in electronics, emissions, and safety, we think Continental's revenue will grow at a faster rate than our estimated 1%-3% long-term average annual growth in global vehicle production. Above-industry-average research and development spending enables consistent product and process innovation, supporting Continental's revenue growth and healthy profitability.Continental will benefit from automotive industry trends, including advanced driver-assist systems, autonomous driving features, and increased vehicular electronics as well as high demand for components and systems that improve safety, increase fuel efficiency, and reduce emissions. The company invests in and successfully cultivates innovative technologies. We think Continental's innovation combined with industry trends results in revenue growth and margins that are better than industry averages. Management expects to annually increase revenue in excess of 5% and generate adjusted EBIT margins in the double digits.After an acquisition binge that culminated in 2007 with the purchase of Siemens VDO, Continental has grown from predominantly a European tiremaker to a global supplier of automotive components, systems, and modules. In 2008, Continental became an acquisition target as Schaeffler unsuccessfully bid for the company (it still holds 46% of the voting interest). While both companies claim to collaborate, so far procurement cooperation and the launch of a turbocharger product have been the only areas of meaningful collaboration.Making us somewhat reticent about the stock is the company's historical propensity for acquisitions and willingness to leverage up its balance sheet to uncomfortably burdensome amounts. Even so, Continental has been in debt-reduction mode, reaching the low end of its historical range of financial leverage. Investors should also be aware that 46% of the stock is controlled by Schaeffler Group, which is owned by Maria-Elisabeth Schaeffler-Thumann, widow of cofounder Georg Schaeffler, and their son, Georg F.W. Schaeffler, both of whom have seats on Continental's supervisory board.Continental is an automotive industry supplier. Co.'s automotive divisions comprised of: Chassis & Safety, which develops and produces systems that provide safety and enhanced vehicle dynamics; Powertrain, which develops solutions for gasoline and diesel engines, as well as hybrid and electrical drive systems; and Interior, which provides solutions for information management within vehicles and networking between vehicles. Co.'s rubber divisions comprised of: Tires, which provides tires for passenger cars through trucks, buses and construction site vehicles to special vehicles, motorcycles and bicycles; and ContiTech, which develops products made from rubber and plastic.
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