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Market Overreacts to Tenneco Disappointment

The stock is trading at a compelling discount to our fair value estimate.

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 Tenneco (TEN), which supplies emissions control, suspension, and powertrain components and modules to the global automotive industry as well as offering aftermarket parts, reported disappointing first-quarter diluted earnings per share before special items of $0.52, missing the $0.95 consensus estimate by a country mile and down $1.56 versus last year. Revenue did jump 74% to $4.5 billion, including recently acquired Federal-Mogul. Adjusting for currency, acquisitions, and divestitures, organic revenue increased 1%, representing an 8-percentage-point outperformance versus the 7% decline in global light-vehicle production.

Management lowered its 2019 revenue outlook to $17.7 billion-$18.1 billion from $18.2 billion-$18.4 billion. It now expects adjusted EBITDA margin (excluding pass-through catalytic converter business and special items) to be 10.0%-10.6%, down from prior guidance of flat with 2018’s 10.6%. Management also said it will postpone the spin-off of DRiV to mid-2020 from the second half of 2019, allowing additional time to integrate the respective businesses and deleverage the balance sheet while the operating environment remains unfavorable.

Richard Hilgert does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.

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