EUR 850.00 For Business Accounts Only

Morningstar | DLPH Updated Forecasts and Estimates from 06 May 2019

Narrow-moat-rated Delphi Technologies, supplier of components and systems that improve engine efficiency, reduce emissions, and support vehicle electrification to the global automotive industry, reported first-quarter 2019 diluted earnings per share before special one-time items, or EPS, of $0.67, handily beating the sell-side consensus EPS of $0.53 by $0.14 but $0.64 worse than last year’s EPS of $1.30. Revenue dropped 11.2% to $1.15 billion versus first-quarter 2018 revenue of $1.30 billion with an 11.5% decline in powertrain systems revenue and an 11.1% decrease in aftermarket revenue. This 4-star-rated stock currently trades at a 39% discount to our $53 fair value estimate. In our opinion, the shares are attractively valued relative to our estimates for revenue growth, cash flow, and returns on invested capital.

Management maintained 2019 guidance including 1% to 3% decline in organic revenue on weakening global production and an unfavorable product mix. Adjusted operating margin guidance is at "around" 9%. Margin contraction from 11.3% in 2018 is driven by unfavorable product mix, incremental engineering cost for future programs, and a full year impact from tariff-related costs. 2019 EPS guidance remained in the range of $3.00 to $3.20. Our 2019 estimates for revenue at $4.68 billion and 9% adjusted operating margin results in EPS of $3.05, at the low end of management guidance.

Our investment thesis remains intact. Delphi Tech benefits from globally ubiquitous clean air legislation that requires passenger vehicle and commercial truck manufacturers to electrify powertrains and enhance efficiency of internal combustion engines. We expect growth products like DC/DC converters, power electronics, as well as powertrain electronic control modules and software, to offset the effect of greater penetration of smaller displacement engines (fewer cylinders) that negatively impact the volume growth of fuel injector and valvetrain product lines.