Strong Growth at Tenneco but PE Is Still Only 10
The company is an auto parts manufacturer that supplies emission control and ride control systems to all of the main auto manufacturers as well as to the replacement and repair market. Products include catalytic converters, diesel particulate filters, mufflers, suspension systems and shock absorbers.
Earnings collapsed following the financial crises and the company reported large losses in 2008 and 2009. However, since 2010 the firm has returned to profitability and net income has increased strongly. Growth has continued in 2013 with first quarter earnings increasing 80% and the outlook is positive with clean air and noise regulations being implemented in the U.S. and Europe over the next four years at an unprecedented rate as well as increasing regulatory requirements in China, India, Russia and Brazil. In response, Tenneco has a pipeline of new catalytic converters, valves, filters and mufflers coming into production to meet the new requirements.
Additionally, Tenneco should benefit from strong recovery in the auto industry and economy in general. Consumers have delayed purchases for many years and are now beginning to return to the market. The auto industry recovery is now beginning to really take hold with trucks leading the way. In June Ford’s F-series sales increased 19.9% while sales of Chryslers Ram trucks increased 23%.
The stock has doubled over the past year, but being priced at 10 times historic earnings with consensus earnings forecasts on Yahoo Finance averaging 19.7% for the next five years may still appeal to some investors.
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