An Industry in Flux

The Zacks Automotive – Original Equipment industry faces formidable challenges, including rising commodity costs, supply chain hiccups, and potential sluggishness in vehicle growth. Headwinds like steep borrowing rates and uncertain Fed moves further cloud the horizon. Tackling these hurdles demands sharp cost management. Amid this turbulence, certain players shine – enter Oshkosh Corporation and Allison Transmission.

Insight into the Industry

This sector encompasses designing, making, and disseminating automotive equipment for vehicle production. From engine components to brakes and suspension, these players drive off vehicle sales. As economies evolve and consumer behavior shifts, auto-equipment outfits must rev up their R&D engines to stay ahead.

Factors in Focus

Sluggish Vehicle Sales Growth looms following stellar progress in 2023. The industry eyes a modest upturn in 2024. The Fed’s hesitant stance on rate cuts, a robust job scene, and elevated inflation dampen hopes for rapid market gains. Squeezed profit margins, raw material cost crunch, and disrupted supply chains add to the mounting challenges.

Despite Cost Woes and Supply Chain Quagmires, the industry soldiers on. Inflated material and labor expenses continue to bite. Turbulent supply chains due to recent incidents like the Baltimore bridge collapse sharpen the industry’s risks. Foreign exchange fluctuations are yet another thorn in the industry’s flesh.

Technology beckons the industry towards a fruitful horizon. With a sharp focus on EVs and AVs, manufacturers gear up for the digital age. Tight emissions codes call for top-quality, budget-friendly auto parts, opening up avenues for equipment providers. A challenging shift necessitates hefty R&D investments and savvy cost management.

Decoding Zacks Industry Rank

Clocking in at a less-than-inspiring Zacks Industry Rank #156 within the formidable 250 Zacks industries, the Outlook appears overcast. Top-performing Zacks sectors outlap their lower-ranked peers by a notable margin. Toying with earnings forecasts seems ill-advised.

The dim show on the earnings front spells trouble. Analysts wedge their thumbs down on the industry’s collective earnings trajectory, with a 6.3% slump in 2024 estimates calendar year to date. The industry’s no-good status demands a closer introspection.

Market Comparison

Over the past year, the sluggish performance of the Zacks Original Equipment industry trails the Auto sector and the Zacks S&P 500 composite. While the sector and S&P 500 boast growth, the auto-equipment domain feels the sting of an 11.9% downturn.

One-Year Price Performance

The Industry’s Valuation Snapshot

Given their hefty debts, auto players favor the EV/EBITDA metric for valuation. Currently trading at 13.68X EV/EBITDA, the industry sits below the S&P 500 and the sector. The past five years have seen valuations swing between 3.92X and 19.84X, with a median of 10.16X.

EV/EBITDA Ratio (Past Five Years)

Top Picks for Now

Allison Transmission stands as a leading producer of automatic transmissions for a slew of heavy-duty vehicles. With strategic buyouts and a promising product pipeline, Allison eyes a bright future in the auto-equipment arena. Coupled with shareholder-friendly initiatives and robust growth projections, Allison projects as a beacon in the industry’s cloudy landscape.

The stage set by Allison shines bright with a Zacks Rank #1 and VGM Score of B. Healthy revenue and earnings forecasts make Allison a standout contender. With prudent financial choices and a penchant for growth, Allison embodies resilience in trying times.

Revving Up: Oshkosh and Allison Transmission Holdings in the Fast Lane