Aptiv Stock Declines 21% Year to Date: Is This a Buying Opportunity?

Aptiv PLC APTV has seen its stock decline 21.3% year to date, a significant drop compared to the 29.3% rally in the industry it belongs to and a 20.2% rise in the Zacks S&P 500 composite.

This decline aligns with the performance of its closest competitors, Magna International MGA, which has fallen by 31.7% and Visteon Corporation VC, which has dropped 24.7% over the same period.

Given the recent weakness in APTV shares, investors might be tempted to buy the stock. But is this the right time to buy APTV? Let’s find out.

Year-to-Date Price Performance

Image Source: Zacks Investment Research

A Lowered Outlook Signals Trouble

Aptiv has lowered its 2024 revenue guidance by $900 million at midpoint in the second quarter of 2024, reflecting ongoing weaknesses in global vehicle production and reductions in powertrains.

APTV’s second-quarter 2024 revenues declined 2% year over year on an adjusted basis, hampered by slowing vehicle production impacting the company’s electrical distribution and user experience product lines.

The company’s Signal and Power Solutions segment is experiencing challenges, with revenues declining 5% year over year in the second quarter of 2024, reflecting weakness in the electrical distribution product line due to lower volumes at select customers.

Strategic Response and Long-term Prospects

Despite these macroeconomic headwinds, Aptiv remains optimistic about its long-term prospects. The company anticipates that cost-saving measures and performance actions will continue to provide benefits, partially offsetting the negative impacts of lower volumes. The company’s adjusted operating income increased 14.3% year over year in the second quarter of 2024, representing an adjusted operating income margin of 12%, up 180 basis points year over year. These gains were driven by manufacturing and engineering performance, and lower supply chain disruption costs.

In response to the softness of vehicle production schedules, Aptiv has initiated additional cost-saving measures expected to generate an extra $50 million in savings through the rest of the year. To address labor inflation, the company is consolidating its manufacturing footprint and shifting more operations to Central America and North Africa. Additionally, Aptiv is modifying vehicle architecture designs to increase automation in manufacturing processes, targeting 30% automation of standard labor hours by 2026 and over 50% by 2030.

Another positive development is the company’s decision to double its share repurchase target from $750 million to $1.5 billion in 2024. This move reflects Aptiv’s confidence in its competitive position and long-term business value, reaffirming its commitment to delivering value to shareholders.

Aptiv’s current ratio (a measure of liquidity) was at 1.49 at the end of the second quarter of 2024 compared with the industry’s 0.92. A current ratio of more than 1 indicates that the company should be easily paying off its short-term obligations.

Hold Off for a More Favorable Entry Point

Aptiv is well-positioned in the connected cars market, with strong system integration expertise that enables it to capitalize on growing trends in electrification, connectivity and autonomy within the automotive sector. However, the continued softness in vehicle production indicates that these benefits may not materialize in the near term.

A weak guidance is quite a strong indicator of APTV’s weak financial performance, at least in the near term. The company expects continued weakness in vehicle production. This may not lift investor optimism any time soon and the stock may undergo further correction.

Given this backdrop, it may not be a bad idea to wait for a better entry point rather than rushing to purchase the stock right now. This would allow time to evaluate whether Aptiv’s current response actions and their projected outcomes prove effective.

Aptiv currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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