Today’s recommendation is a global supplier to the automotive industry. Earnings are scheduled to be announced on February 20, 2014.
Federal-Mogul (FDML)
from Ford Equity Research
Federal-Mogul (FDML) is a supplier of components, accessories and systems to the automotive, small engine, heavy-duty, marine, railroad, agricultural, off-road, aerospace and energy, industrial and transport markets, including customers in the original equipment manufacturers and servicers (OE) market and the replacement market.
The company has two segments: Powertrain, which provides products for OE applications, including pistons, piston rings, piston pins, cylinder liners, and valve seats and guides; and Vehicle Components Solutions, which provides powertrain products as well as brake disc pads, brake linings, brake blocks, brake system components, chassis products, and wipers to aftermarket customers.
Ford’s Strong Buy recommendation on Federal-Mogul Corp. is the result of our systematic analysis on three basic characteristics: earnings strength, relative valuation, and recent stock price movement.
The company has enjoyed a very positive trend in earnings per share over the past 5 quarters and while recent estimates for the company have remained steady, FDML has posted better than expected results. Based on operating earnings yield, the company is undervalued when compared to all of the companies we cover. Share price changes over the past year indicates that FDML will perform very well over the near term.
While Federal-Mogul Corp.'s earnings have increased from $0.07 to an estimated $1.24 over the past 5 quarters, they have shown strong acceleration in quarterly growth rates when adjusted for the volatility of earnings. This indicates an improvement in future earnings growth may occur.
Federal-Mogul Corp.'s operating earnings yield of 6.3% ranks above 77% of the other companies in the Ford universe of stocks, indicating that it is undervalued. Federal-Mogul Corp.'s stock price is up 128.9% in the last 12 months, up 20.3% in the past quarter and down 1.3% in the past month. This historical performance should lead to above average price performance in the next one to three months.
Richard Segarra, CFA, Ford Equity Research Report, www.fordequity.com, 800-842-0207, January 3, 2014