Morningstar | TEN Updated Forecasts and Estimates from 19 Nov 2018
Narrow-moat-rated Tenneco reported third-quarter earnings per share before special items of $1.70, a whopping $0.21 higher than the $1.49 consensus estimate and $0.03 better than the third quarter of 2017. Revenue increased 4% to a third-quarter record of $2.4 billion versus $2.3 billion last year. However, excluding slightly favorable currency translation, revenue growth would have been a healthy 7%. Despite year-over-year revenue growth, third-quarter adjusted EBIT was off by $5 million at $149 million versus $154 million last year. Margin contraction of 50 basis points to 6.3% was driven by raw material cost increases, partially offset by higher light-, heavy-, and off-highway vehicle volume.Management tweaked its full-year revenue guidance, including organic revenue growth of 6% (excludes favorable currency tailwind and Federal-Mogul), up from its 5% prior guidance. Consolidated revenue guidance is $11.8 billion, including the higher organic growth rate and the Federal-Mogul acquisition that closed Oct. 1. The legacy Tenneco value-added EBIT margin (excludes pass-through catalytic monoliths) expectation is now 8.5%, at the low end of the prior guidance range of 8.5%-8.7%. Including the Federal-Mogul acquisition, EBITDA margin is forecast at 11.3%-11.5%.
Despite our slightly less optimistic forecast for revenue at $11.7 billion and adjusted EBITDA margin at 11.3%, we still arrive at a $73 fair value estimate. The 5-star-rated Tenneco shares currently trade at a compelling 50% discount to our fair value estimate. In our opinion, the stock is attractively valued relative to our estimates for revenue, cash flow, and return on invested capital.
Tenneco designs, manufactures and sells products and services for light vehicle, commercial truck, off-highway, industrial and aftermarket customers. As a parts supplier, the company produces individual component parts for vehicles as well as groups of components that are combined as modules or systems within vehicles. These parts, modules, and systems are sold to the light vehicle and commercial truck manufacturers as well as aftermarket customers, including independent warehouse distributors, distributors, engine rebuilders, retail parts stores, mass merchants, and service chains. The company operates in four segments, consisting of the following: Clean Air, Powertrain, Motorparts, and Ride Performance.
Morningstar, Inc. is a leading provider of independent investment research in North America, Europe, Australia, and Asia. The company offer an extensive line of products and services for individual investors, financial advisors, asset managers, and retirement plan providers and sponsors.
Morningstar provides data on approximately 530,000 investment offerings, including stocks, mutual funds, and similar vehicles, along with real-time global market data on more than 18 million equities, indexes, futures, options, commodities, and precious metals, in addition to foreign exchange and Treasury markets. Morningstar also offers investment management services through its investment advisory subsidiaries and had approximately $185 billion in assets under advisement and management as of June 30, 2016.
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