Aptiv Earnings: Reports Solid Results but Market Gets Spooked About Electric Vehicle Outlook

Narrow-moat-rated Aptiv APTV reported third-quarter earnings per share before special items of $1.30, $0.07 above the $1.23 FactSet consensus estimate and $0.02 better than the $1.28 year-ago result, despite the UAW strike. Third-quarter revenue was a hair above consensus by about $23 million, rising 11% to $5.1 billion from $4.6 billion last year due to solid flow-through on volume growth, new business launches, and contributions from acquisitions Wind River and Intercable, partially offset by periodic supply chain disruptions. Excluding currency, acquisitions, and divestitures, organic revenue increased 7%, exceeding a 5% increase in global light vehicle production weighted to Aptiv’s customer base by 2 percentage points.

Third-quarter adjusted EBIT was $560 million for a margin of 11.0%, up 7% from $525 million with a 11.4% margin in the prior year as the UAW strike reduced EBIT $30 million and currency hit margin by 40 basis points. Free cash flow nearly doubled to $534 million versus $225 million in the prior year on improved earnings and working capital discipline.

Aptiv stock sold-off by roughly 13% as the market was spooked by the lower growth over market in the quarter, concerned that some customers’ delays in electric vehicle launches and slowdown in EV production rates were the cause. We think the market overreacted to the news as EV revenue growth has, on average, added only 1 percentage point to Aptiv’s growth over market.

Management maintained 2023 guidance with full-year revenue expected to be $19.95 billion-$20.25 billion and adjusted EBIT margin of 10.4%-10.7%. While our 2023 estimated revenue of $20.0 billion and adjusted EBIT margin of 10.5% are unchanged, out of an abundance of caution, we lightened our Stage I revenue growth assumption to 11% from 12%, resulting in a $12 reduction to our fair value estimate to $152. The 5-star-rated shares of Aptiv currently trade at a compelling 51% discount to our new fair value.