Tata Motors (TTM, Financial) has over 8 million vehicles on the road, owns iconic brands Jaguar and Land Rover and produces its own broad product line. It also holds the largest market share of commercial vehicles in India with almost 50% of share. Tata has 13 production facilities in five countries and distribution in more than 100 countries. All told, this adds up to more than $570 million in net income on over $44 billion in annual sales, and a book value of $20.54 per share.
The last three years have been rough
In May 2015, I wrote about this Ken Fisher Bargain Stock. At the time, the fundamentals looked solid, but by September the price had been cut almost in half, down to $25 from $40 per share. Since then, the stock has continued its downward trend as margins have eroded and capex has increased.
In the last 52 weeks alone, the stock is off 62%. During the June quarter, the company booked a surprise loss of 41 cents per share, which was a sharp turnaround from the 71-cent profit in the previous-year quarter. Chinese price declines accounted for a significant portion of the loss, but this was further compounded by delayed purchases thanks to import tariff cuts that began in July.
Yet, the long-term prospects for Tata Motors remain strong, and while investors seem to be getting behind the hype and sizzle of the next hot thing, transportation will still be an integral part of society. Investors would be well-served to buy Tata now or add to an existing position before the company's bottom line improves.
The company's Jaguar Land Rover subsidiary, which accounts for the majority of its revenues, has been investing in the electric vehicle arena. Earlier this year, it started delivering they battery-powered Jaguar I-PACE. It also started rolling out several plug-in Range Rovers and announced that every new model from 2020 onward would be hybrid or fully electric. That's huge!
Lower estimates, greater potential
It seems almost like clockwork: Now that the stock is off $8 since June, analysts have downgraded it and lowered earnings estimates for the company. The funny part is that many of those estimates have Tata Motors generating north of $4 by the end of 2019. That would be 30% yield based on today's price.
The company's market cap is $8 billion, roughly equal to what it has in cash. It has a dominant brand with Jaguar and Land Rover, which enables premium pricing, high margins and strong profits. Even though competitors have gained market share in the commercial vehicle business, its Indian segment benefits from low labor costs and a local tax structure that favors domestic manufacturers. This will help it continue pounding out higher profits for years to come.
At his point, the stock is oversold, and it is only a matter of time before the market jumps on the Tata bandwagon again.
Disclosure: I am not long/short TTM.
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