Aptiv’s Investor Day Revenue Growth and Margin Targets Impress

Narrow-moat Aptiv APTV highlighted revenue growth and margin expansion as software becomes a larger portion of overall revenue. On a consolidated basis, management pegged revenue growth at 8-10 percentage points over the market, which is global light-vehicle production weighted to Aptiv’s customer base, unchanged from prior guidance. However, for 2025-30, the firm expects to grow consolidated revenue at over 10 percentage points above the market, which is a significant uptick in guidance. Adjusted operating margin for 2025 and 2030 is targeted at 14%-14.5% (higher than our prior model at 13.8%) and over 17%, respectively. Due to changes in our model from rolling to the new fiscal year and upon review of the investor day objectives, we raised our fair value estimate to $158 per share from $134. The 4-star-rated shares of Aptiv currently trade at an attractive 23% discount to our fair value estimate.

The signal and power systems group is expected to grow revenue by 5-7 percentage points above the market for 2022-25. Vehicle electrification and increasing electronics content are the main drivers for the group. Even so, due to advanced driver-assistance systems and software (zone control, central compute, full vehicle digitalization), the active safety and user experience segment is forecast to grow at about 14 percentage points over the market. Combining the segments results in 8-10 percentage points of growth over the market to 2025 and over 10 percentage points above the market for 2025-30, the highest revenue growth in our coverage.

S&PS’ adjusted operating margin is forecast at 14.5%-15.0% in 2025, up from 11.1% in 2022. However, because of the increasing higher-margin software business, AS&UX’s margin is expected to expand from 3.1% in 2022 (more heavily hit by chip shortages than S&PS) to 13.0%-13.5% in 2025. While management didn’t provide a margin split for 2030, we believe the more than 17% target is driven by additional AS&UX margin gains from high growth in software.