Last week, Moody’s Investors Service (MCO) lifted the corporate family and probability of default ratings of TRW to “B2″ from “B3″ and of senior secured credit facilities to “Ba2″ from “Ba3″ based on the same reason. The overall ratings outlook was upgraded to “positive” from “stable” by the rating agency.

In the fourth quarter of 2009, TRW earned $168 million, or $1.40 per share, in sharp contrast to a loss of $74 million, or 73 cents per share, in the prior-year period. The profit was significantly better than the Zacks Consensus Estimate of a profit of 73 cents per share.

The improvement was driven primarily by a positive impact from higher sales, especially in Europe and the Rest of the World. Other contributing factors included restructuring and cost containment actions implemented by the company and lower raw material prices.

For full year 2009, TRW posted a profit of $137 million, or $1.02 per share. With this, the auto parts supplier has zoomed past the Zacks Consensus Estimate of 48 cents per share.

TRW also anticipates higher sales for 2010. The company expects sales in the range of $12.3 billion to $12.9 billion for the year, up from sales of $11.6 billion in 2009.

For 2010, the Zacks Consensus Estimate for TRW is a profit of $2.14 per share. Over the last 30 days, 4 out of 8 analysts covering the stock have revised the estimate upward, while only one has revised it downward. Therefore, we are maintaining our “Outperform” recommendation on the stock.

The stock price of TRW elevated 0.25% to $27.82 after the market closed on last Friday.

Zacks Investment Research

(TRW) TRW Automotive Holdings Auto Gets Rating Upgrades

Tenneco will have a 41% equity share in the JV while FAW Sihuan will have 49%. On the other hand, Tenneco Tongtai (Dalian) Exhaust System Co., in which Tenneco has an 80% stake, will have a 10% stake in the venture.

With this, Tenneco will acquire the controlling interest in the venture. The JV, based in the Changchun city of China, will have FAW-Volkswagen and FAW Jiefeng as its initial customers.

FAW-Volkswagen Automobile Co. Ltd., formed in 1991, is a major passenger sedan joint-venture of FAW Group Corporation and Volkswagen AG, Audi AG and Volkswagen Automobile (China) Investment Co. Ltd. FAW Jiefeng is a wholly owned subsidiary of FAW Group Corp.

Tenneco aims to broaden its product portfolio, gain new business and attain a dominant position in the emerging markets through various acquisitions and alliances. In China, Tenneco has increased its footprint over the years by entering several joint ventures with partners including Germany-based Eberspächer International and China-based companies such as Chengdu Lingchuan Mechanical Plant, Shanghai Tractor and Engine Co. (a subsidiary of Shanghai Automotive Industry Corp), Beijing Automotive Industry Company and Beijing Hainachuan Automotive Parts Company Limited.

Tenneco also has strategic alliances with exhaust manufacturer, Futaba, and ride control manufacturer Hitachi (HIT, as a successor to Tokico Ltd. following the acquisition of Tokico) in Japan.

Further, Tenneco has established a presence in Thailand through a joint venture with Thai exhaust system manufacturer Yarnapund Co., which supplies exhaust components for General Motors and Japanese carmaker Isuzu. The company also acquired the suspension business of Gruppo Marzocchi, a supplier of suspension technology in the two-wheeler market based in Italy.

Zacks Investment Research

(TEN) Tenneco Forms Chinese Joint Venture

However, the loss was wider than the Zacks Consensus Estimate of 8 cents per share. Sales in the quarter slipped 2% to $1.49 billion. Adjusted EBITDA margin improved significantly to 7.7% compared to adjusted EBITDA of 0.3% in the fourth quarter of 2008.

In 2009, Dana reported a narrower loss of $278 million or $2.53 per share (before special items), versus a loss of $722 million or $5.78 per share (before special items) in the previous year. However, the loss was significantly higher than the Zacks Consensus Estimate of 92 cents per share.

Sales in the year fell 35% to $5.2 billion, driven by lower industry production volumes in 2009. Adjusted EBITDA went down $23 million to $326 million.

Financial Position

Dana had cash and cash equivalents of $947 million as of December 31, 2009, an improvement from $777 million as of December 31, 2008. Long-term debt was $969 million as of that date. The company’s long-term debt-to-capitalization ratio stood at 37%.

In 2009, cash flow from operations reached $208 million, in sharp contrast to a cash outflow of $1 billion in the previous year. Meanwhile, capital expenditures declined to $99 million from $250 million in 2008.

Based in Maumee, Ohio, Dana Holding Corp. (Dana Corporation, prior to its emergence from bankruptcy in February 2008) — a Zacks #3 Rank (Hold) stock — designs, manufactures and supplies products for vehicle manufacturers worldwide. The company offers its products under the Spicer, Victor Reinz, Parish, and Long brand names. It serves vehicle manufacturers in the automotive, commercial vehicle and off-highway markets.

Zacks Investment Research

(DAN) Dana Holding Corporation’s Loss Narrows

The profit also significantly increased from the Zacks Consensus Estimate of 14 cents per share. The improvement was attributable to higher sales and effective restructuring and cost reduction initiatives.

Sales increased 8% to $1.4 billion in the quarter. This was driven by Federal-Mogul’s continued effort to expand its market share position manufacturing capacity and engineering presence in China, India, Brazil and other growth markets which have performed better during the global automotive downturn.

Consequently, about 7% of the total revenue was generated outside the U.S., Canada and Europe in the quarter, representing a 24% increase over the prior-year quarter.

Gross margin improved to $225 million or 16% of sales in the quarter from $183 million or 13.9% of sales in the same period of 2008. This reflected the benefits from restructuring and cost reduction initiatives during 2009.

Annual Results

Federal-Mogul witnessed a narrower loss of $33 million or 46 cents per share in full-year 2009 versus a loss of $465 million or $4.69 per share in the previous year. However, the loss was wider than the Zacks Consensus Estimate of a loss of 35 cents per share.

Sales in the year dipped 22% to $5.3 billion due to a downturn in the global automotive and financial market. On a constant dollar basis, the company’s sales were down 19% on a year-over-year basis.

Financial Position

Federal-Mogul had cash and cash equivalents of $1 billion as of December 31, 2009, an improvement from $888 million as of December 31, 2008. Long-term debt was $2.8 billion as of that date. Long-term debt to capitalization ratio was as high as 73%.

In 2009, cash flow from operations decreased to $328 million from $627 million in the previous year. However, capital expenditures declined as well to $176 million from $320 million in 2008.

Based in Southfield, Michigan, Federal-Mogul — which operates as a subsidiary of Icahn Enterprises, L.P. — is a manufacturer and distributor of parts, components, modules and systems to the automotive, small engine, heavy-duty, marine, railroad, aerospace and industrial markets worldwide. Its principal customers include original equipment manufacturers of vehicles and industrial products, and aftermarket retailers and wholesalers.

Federal-Mogul is a Zacks #2 Rank (Buy) stock. Based on the strong results, the stock price improved more than 2% to $16.11 after the market closed yesterday.

Zacks Investment Research

(FDML) Federal-Mogul Corporation Reports Solid Fourth Quarter

The improvement was driven primarily by a positive impact from the higher level of sales – especially in Europe and the rest of world. Other contributing factors included restructuring and cost containment actions implemented by the company and lower raw material prices. Sales in the quarter rose 20% to $3.4 billion.

For full year 2009, TRW posted a profit of $137 million, or $1.26 per share, compared to $153 million, or $1.50 per share, a year ago. The profit was significantly higher than the Zacks Consensus Estimate of 48 cents per share. However, sales in the year sagged 22.5% to $11.6 billion, due to a sharp decline in global automotive production volumes.

TRW had cash and cash equivalents of $788 million as of December 31, 2009, almost flat compared to the year-ago level. Long-term debt amounted to $2.4 billion as of that date. This reflected a long-term debt-to-capitalization ratio of 67%.

For full-year 2009, net cash flow was $455 million from operating activities, compared to $773 million in the prior year. The decline in cash flow was attributable to higher working capital requirements. Capital expenditures reduced to $201 million from $482 million in 2008. Free cash flow was $254 million, compared to $291 million in 2008.

Road Ahead

TRW anticipates sales in the range of $12.3 billion to $12.9 billion for full year 2010 and $3.4 billion for the upcoming quarter. The expectations were based on the assumptions for industry production volumes of 10.8 million units in North America and 16 million units in Europe, up 27% and down 2%, respectively, compared to 2009.

Further, TRW expects that the continuing recovery in the North American market and the benefits achieved from restructuring and cost containment actions implemented in 2009 will offset an increase in pension expense, rising commodity prices and other factors in 2010.

Estimate Revisions Trend

Over the last 30 days, only one analyst has revised upward for full year 2010, out of the 7 analysts covering the stock. Therefore, in the absence of any significant agreement among analysts, our long-term recommendation on the stock remains “Outperform”.

With respect to earnings surprises, the stock has performed consistently well over the trailing four quarters. Consequently, the average earnings surprise was as high as 144.53%.

The current Zacks Consensus Estimate for the first quarter and full-year 2010 are 38 cents and $1.82, respectively. The upside potential of these estimates, essentially a proxy for future earnings surprises, currently stands at minus 13.16% and plus 1.65%, respectively.

Zacks Investment Research

(TRW) TRW Automotive Holdings Zooms Past Earnings Estimates

Johnson Controls, a Zacks #1 Rank stock, commands a strong position in its markets. The stock is being driven by cost-reduction efforts, accretive acquisitions and healthy operating cash flows.

In the first quarter of fiscal 2010 ended December 31, 2009, Johnson Controls showed a profit of $288 million or 43 cents per share, in stark contrast to a loss of $79 million or 13 cents per share (excluding non-recurring items) the previous year. This was much better than the Zacks Consensus Estimate of 29 cents per share.

The improvement in earnings was attributable to higher sales supported by the cost improvement initiatives of Johnson. Net sales in the quarter increased 15% to $8.4 billion. This was an increase for the first time since 2009.

In the quarter, Johnson Controls’ operating cash flow improved to $808 million, in sharp contrast to an outflow of $317 million in the previous fiscal year. Meanwhile, capital expenditures decreased to $177 million from $268 million in the first quarter of 2008.

Johnson Controls has projected a sales increase of 16% to $33 billion for 2010 versus the previous forecast of $31 billion. Earnings per share are now expected to lie in the range of $1.70–$1.75 per share compared to the earlier guidance of $1.35–$1.45 per share. The Zacks Consensus Estimates for the upcoming quarter and for fiscal 2010 are 34 cents and $1.80 per share, respectively.

Over the last 30 days, out of 17 analysts covering the stock, 11 analysts have revised their estimates upward while only one has revised downward for the upcoming quarter. In the same period, out of 16 analysts covering the stock, 15 analysts have revised upward their estimates while none has revised downward the estimate for 2010. This aggressive upward revision of estimates has reflected in a Zacks #1 Rank (Strong Buy) for the stock.

Zacks Investment Research

(JCI) Johnson Controls’ Credit Outlook Upgraded Standard & Poor’s Ratings Services

Net sales dipped 15.3% to $133.8 million due to the reduction in production volumes in the commercial vehicle markets in Europe (53.9%) and North America (17.9%). Despite this, the Warren, Ohio-based designer and manufacturer of engineered electrical and electronic components, modules and systems for the medium and heavy-duty truck, agricultural, automotive and off-highway vehicle markets generated an operating profit of $2.2 million in the quarter.

In 2009, Stoneridge reported a net loss of $32.4 million or $1.37 per share, compared to a net loss of $97.5 million, or $4.17 per share in 2008. Sales in the year slashed 37% to $475.2 million. The loss was a tad lower than the Zacks Consensus Estimate of $1.38 per share.

Stoneridge had cash and cash equivalents of $92 million as of December 31, 2009. Long-term debt remained unchanged at $183 million as of the same date compared to the same period last year.

In 2009, Stoneridge had net cash flow from operating activities of $14 million — significantly lower than the year-ago level of $42 million. Meanwhile, capital expenditures more than halved to $12 million from $25 million in the prior-year period.

Stoneridge is banking on a recovery in the global industry as well as on its recent product launches to drive sales volume in 2010. We continue to recommend the shares of the company as Neutral (Zacks Rank #3) given the Zacks Consensus Estimate of 27 cents for 2010.

Zacks Investment Research

(SRI) Stoneridge’s Loss Narrows

American Axle also surpassed the Zacks Consensus Estimate of 11 cents per share for the quarter. The company has achieved transformational improvements in its cost structure, operating flexibility and capacity utilization.

Net sales in the quarter slipped 8% to $464 million, driven by lower production volumes (7%) for the North American light truck and SUV programs that the company currently supports for GM and Chrysler due to lower production of mid-sized light truck programs.

Annual Results

In 2009, American Axle reported a narrower loss of $66 million or $1.25 per share (before special items), compared to $214.6 million or $4.63 per share in 2008.

Net sales dipped 25% to $1.5 billion, driven by lower production volumes (30%) for the North American light truck and SUV programs that the company currently supports for GM and Chrysler due to their extended production shutdowns on account of their bankruptcies. The company has estimated the reduction in sales and operating income resulting from these shutdowns to be approximately $304 million and $95 million, respectively

However, American Axle’s content-per-vehicle (measured by the dollar value of its product sales supporting GM’s North American light truck and SUV programs and Chrysler’s Heavy Duty Dodge Ram pickup trucks) in 2009 increased to $1,403 from $1,391 in 2008.

Financial Position

American Axle had cash and cash equivalents of $178.1 million as of December 31, 2009, compared to $198.8 million as on December 31, 2008. Long-term debt amounted to $1.07 billion as of December 31, 2009, reflecting a debt-to-equity ratio of 1.9.

In 2009, American Axle had a net cash flow of $17.3 million from operating activities in sharp contrast to an outflow of $163.1 million in 2008. Meanwhile, capital expenditures remained almost flat at $141.5 million in the year.

Outlook

For 2010, American Axle anticipates sales in the range of $1.9–$2.1 billion, representing an annual sales growth of approximately 25%–40% on a year-over-year basis. This is based on the assumption that the Seasonally Adjusted Annual Rate of light vehicle sales in the U.S. increases from 10.4 million vehicle units in 2009 to a range of 11.0 million–11.5 million vehicles in 2010. Based on the sales projection, the company expects to be profitable for the year and generate positive free cash flow assuming capital spending in the range of 4%–5% of sales.

Zacks Investment Research

(AXL) American Axle and Manufacturing Swings to Profit

Analysts expect earnings growth of 20.20% in 2009. The Zacks Consensus Estimate has been holding at 84 cents per share for the last 90 days.

Wonder Auto is expected to report fourth quarter and full year results on Feb 11. In a press release on Jan 28, the company said it expects 2009 results to exceed its previous guidance of sales of $208 million.

The company was also optimistic about 2010. Wonder Auto said that subsidiaries were expanding their capacity and upgrading manufacturing processes in order to keep up with increasing customer demand in the first quarter of 2010.

As result of the company’s statement, analysts are turning more bullish on Wonder Auto. In the last 7 days, one estimate has moved higher for 2010 as the Zacks Consensus rose to 93 cents from 92 cents. Earnings growth is projected at 10.70%.

Wonder Auto is now a Zacks #2 Rank (buy) stock. It has attractive valuations. It is trading at just 10x forward earnings. Wonder Auto has a stellar 1-year return on equity of 18.49% which easily surpasses the industry average of 5.9%.

Tracey Ryniec is the Value Stock Strategist for Zacks.com. She is also the Editor in charge of the market-beating Zacks Value Trader service.

Zacks Investment Research

(WATG) Wonder Auto Technologies Incorporated – Analysts Expect 20% Earnings Growth

Company Description

TRW supplies products for automobiles including integrated vehicle control and driver assist systems, braking systems, steering systems, suspension systems, seat belts and airbags, electronics and aftermarket replacement parts and services.

TRW operates in 26 countries serving 40 major vehicle manufacturers.

TRW’s Winning Streak

TRW has been incredibly consistent at surprising on earnings estimates since 2005. The company has not missed on estimates and has met them only twice in the last 5 years. (I hope I’m not jinxing them now.)

You can see the great earnings surprise win streak below.

In the last four quarters the company has beaten by an average of 144.53%.

Zacks Consensus Estimates Rise

Given the company’s track record of beating the Zacks Consensus, it is not surprising that the estimates have been trending higher as the earnings report date approaches. The fourth quarter Zacks Consensus has risen 1 cent to 48 cents in the last week with 1 estimate moving higher in that time.

Analysts are very bullish about 2010. They expect year over year earnings growth of 275.37%. The 2010 Zacks Consensus has moved higher by 7 cents in the last 30 days to $1.79 from $1.72 per share.

TRW is expected to report fourth quarter earnings on before the bell on Feb 25.

Third Quarter Sales Declined

On Nov 4, TRW reported its third quarter results which saw sales fall 13.5% to $3.1 billion from the year ago period. The decline was the result of reduced vehicle production volumes across most geographic regions.

Suffice it to say, it’s been a rough couple of years for any company involved in the automotive industry. TRW’s third quarter was boosted by restructuring and cost containment.

The company was cautiously optimistic about the fourth quarter outlook as forecasts were rising for increasing vehicle production.

“Although it appears the bottom of the financial crisis has been reached, full recovery will be a long and gradual process,” said John C. Plant, CEO.

Value Fundamentals

TRW Automotive is a Zacks #1 Rank (strong buy) stock. It has a price-to-book ratio of just 1.60.

Tracey Ryniec is the Value Stock Strategist for Zacks.com. She is also the Editor in charge of the market-beating Zacks Value Trader service.

Zacks Investment Research

(TRW) TRW Automotive Holdings – Beat Expectations Four of Four Quarters By an Average of 144.53%

Autoliv Nichiyu has annual sales of about $35 million, the lion’s share of which is generated internally from sales to other Autoliv companies. Apart from this JV, all other operations in the country are controlled as wholly owned subsidiaries by the company.

Autoliv holds an inflator market share of approximately 30% in Japan. Major customers include Toyota, Nissan, Honda, Mitsubishi, Mazda and Suzuki.

Post the acquisition, Autoliv Nichiyu Co. Ltd will be re-named Autoliv Aichi Co., Ltd. The deal is expected to close as of today.

Autoliv has shown a profit of $33.7 million or 37 cents per share in the third quarter of the year, after reporting losses for the preceding three quarters. With this, the Sweden-based manufacturer of occupant restraint systems for automobiles has also beaten the Zacks Consensus Estimate of 24 cents per share.

Nevertheless, earnings declined from $34 million, or 44 cents per share, in the same quarter of 2008. Consolidated net sales declined 14% to $1.33 billion while organic sales (i.e., sales excluding currency effects and acquisitions/divestitures) fell 12%.

Zacks Investment Research

(ALV) Autoliv Acquires Remaining Shares of Japanese Joint Venture

Johnson reported positive numbers in the quarter despite weakness in both North American automotive and residential heating, ventilating and air conditioning (HVAC) markets. However, the profits were down from $511 million or 73 cents per share in the fourth quarter of the last fiscal year.

Johnson’s constant focus on cost control not only increases production efficiency, but also provides opportunities to drive margins over the next several years. In 2008, Johnson had initiated a $495 million restructuring plan under which the company aligned resources with its growth strategies while reducing the cost structure of its global operations. The restructuring actions are expected to be completed by the end of fiscal 2010, driving earnings by 20-25 cents per share.

In 2009, Johnson Controls initiated a second round of restructuring, which included a workforce reduction of about 6,400 employees and the closure of 9 plants. The restructuring initiative is expected to increase earnings by 15 cents per share in 2010 on its completion.

Johnson is well positioned to benefit long-term from its focus on China. The company owns 26 manufacturing plants catering to the automotive business in China. In the seating business, the company has acquired more than 50% of the country’s market share.

However, Johnson Controls is experiencing weakness in its North American business, following a general softness in the industry. On the other hand, anemic demand, high inventory levels at the OEMs and continuous market share losses are pressuring suppliers like Johnson Controls.

Moreover, auto parts manufacturers such as Johnson Controls are at risk due to lost production and disrupted payments from bankrupt U.S. automakers General Motors and Chrysler. Although the companies have regained their positions, auto parts manufacturers dependent on them have yet to overcome the disruptions on account of their bankruptcies.

Johnson Controls anticipates a sales increase of 9% to $31 billion for fiscal 2010. Earnings are expected to increase to $1.35–$1.45 per share, marginally lower than the Zacks Consensus Estimate of $1.49. Sales, earnings and margin improvements are expected in all three of its businesses in 2010. These estimates are backed by higher global automotive production forecasts in 2010 compared to 2009 and a resumption of higher growth rates in global emerging markets.

Zacks Investment Research

(JCI) Earnings Preview for Johnson Controls

American Axle expects sales of $1.5 billion in 2009, close to the Zacks Consensus Estimate of $1.54 billion. The news prompted the share price to rise more than 7% after the market closed on Wednesday (and pulled back 2% today).

American Axle had posted a net loss of 18 cents (before special items) in the third quarter of the year. This was better than the Zacks Consensus Estimate of a loss of 37 cents per share.

Net sales dipped 22% to $409.6 million in the quarter. However, in absolute terms, it was the highest quarterly sales of 2009. The lower sales were on the back of an 18% decline in customer production volumes for the North American light truck and sport utility vehicle (SUV) programs that the company currently supports for GM and Chrysler.

American Axle is a Detroit-based company and a leader in the supply of driveline systems, modules and components for the light vehicle market. The company manufactures axles, driveshafts and chassis components for light trucks, SUVs and passenger cars.

On account of its strong reliance on General Motors and Chrysler, American Axle has been hit hard by their bankruptcies. We continue to recommend the shares of the company as Neutral.

Zacks Investment Research

(AXL) American Axle and Manufacturing Expects Profit

Q4 Guidance Raised

On Dec 11, Autoliv boosted its Q4 outlook, saying it expects sales to increase 35% from last year, up from the previous forecast of a 25% increase. The company also expects its operating margin to increase to 9%, 2% better than the previous 7% forecast.

Third-Quarter Results

The higher guidance comes on the heels of Autoliv’s better than expected Q3 results, reported in late October. EPS came in at 36 cents, 9 cents ahead of the Zacks Consensus Estimate.

Estimates Rising

Estimates have been trending higher for the last few months, with the current year more than doubling to 57 cents. The next-year estimate is bullish, pegged at $2.73, a 382% growth projection.

Valuation

Based on the bullish next-year estimate, shares are trading with a forward P/E of 16, in line with the overall market.

The Chart

Shares of ALV have been trending higher since bottoming out in early March, recently gapping open higher on the higher guidance. Take a look below.

Michael Vodicka is the Momentum Stock Strategist for Zacks.com. He is also the Editor in charge of the market-beating Zacks Surprise Trader Service.

Zacks Investment Research

(ALV) Autoliv Incorporated – Forth Quarter Earnings Guidance Raised

Earnings was better than the Zacks Consensus Estimate of 4 cents per share for the quarter. Furthermore, adjusted EBIT went up 36% to $46 million from $34 million in the prior-year quarter.

Tenneco has a diversified platform mix, which includes all top-selling light trucks in North America and a majority of top-selling passenger cars overseas. This has helped the company to win significant business.

Tenneco’s Emission Control segment expects to benefit from tightening emission regulations through 2015, expecting the global market share to hit 10% by then. Currently, the company has a number of production or development contracts with 11 on-road commercial vehicle customers, which are expected to generate new revenues starting in 2010 in the U.S., Europe, China and South America.

Further, Tenneco has an efficient restructuring strategy. Under the present global restructuring plan, which includes flex operations at plants, plant closures and elimination of 1,100 positions (500 salaried and 600 hourly) worldwide, the company expects to generate $58 million in annualized cost savings.

However, pricing pressure from original equipment manufacturers (OEMs) remains a problem for Tenneco. Demands for concessions from OEMs are constricting the company’s margins. Additionally, the company largely depends on a few customers in the OEM segment, with General Motors, Ford and Volkswagen accounting for about 40% of sales.

Tenneco is also facing lower original equipment (OE) production volumes in Europe, North America and Australia as well as declining European aftermarket sales, where margins are twice as high as in direct sales to automakers.

The company is relying on robust light vehicle production growth in China and India. However, we believe sizable production cuts in the OE market will continue to mar the company’s results. For 2009, the Zacks Consensus Estimate reflects a loss of 76 cents per share. Thus, we stick to our Neutral recommendation for the stock.

Zacks Investment Research

(TEN) Earnings Preview for Tenneco

Last month, GM halted its plan to sell a 55% stake in Opel to Magna (MGA), backed by Russia’s Sberbank, and decided to continue running the unit on its own.

GM had been in a dilemma while choosing Magna as the preferred bidder for Opel. The German Government preferred Magna, which had promised not to close any of the four Opel plants in the state. The deal was supported by a €1.5 billion ($2.15 billion) Government-backed bridge loan.

However, with Magna, GM was afraid of losing Opel’s technology to the Russian car industry. If Magna had won the deal, GM may have lost Russia’s increasingly important market for its models such as Chevrolet. Secondly, it would have lost the Opel engineers, who are integral to GM’s overall strategy.

Magna and Sberbank were planning to manufacture Opel cars in Russia with the biggest automaker in the nation – Gaz Group – jointly owned by the tycoon Oleg Deripaska and Avtovaz (partly owned by France’s Renault).

A 13-member Opel/Vauxhall Trust Board was formed before GM’s bankruptcy in June to decide the fate of the unit. The German Government held 65% of the unit and GM held 35%. The German Government’s holding has now returned to GM as the automaker repaid €1.5 billion ($2.3 billion) in a German Government bridge loan, granted earlier this year to keep Opel afloat.

Zacks Investment Research

(MGA) General Motors to Compensate for Opel?

Currently, the safety products for the smart fortwo are supplied by the Michigan-based auto parts manufacturer, Delphi Corporation, formerly a subsidiary of General Motors (MTLQQ). But following the acquisition of certain assets of Delphi’s European airbag and steering wheel operations by Autoliv, the products will be supplied by the latter.

Earlier this year, Delphi had announced its plan to exit from its Occupant Protection Safety (OPS) business in North America, Europe and Asia by the end of the year. The transaction is expected to close by Dec 31.

Autoliv will assume control of Delphi’s airbag and seatbelt assets in North America, which will be consolidated into the former’s existing facilities. Autoliv will also gain control of Delphi’s steering wheel operations in Matamoros, Mexico.

The OPS business has customers such as General Motors, Hyundai (HYMLF), Ford (F), Daimler (DAI) and Navistar (NAV), with expected combined sales of $125 million in 2010.

In the third quarter, Autoliv returned to profitability with a net income of $33.7 million or 37 cents per share after reporting losses for the preceding three quarters. With this, the Sweden-based supplier of automotive safety systems has also beaten the Zacks Consensus Estimate profit of 24 cents per share. The company credited higher light vehicle production due to the “Cash for Clunkers” program and other stimulus packages to have boosted its earnings.

Recently, Autoliv has raised its fourth quarter outlook on the back of stronger light vehicle market in China and other emerging markets. The company now expects consolidated net sales to increase by at least 35%, given the current exchange rates. Organic sales are anticipated to improve by at least 20% and its operating margin, excluding restructuring charges, to grow to at least 9% during the quarter.

While reporting the third quarter results, Autoliv had expected consolidated net sales to rise by 25% with organic sales growing by more than 10% due to an expected rebound in the European light vehicle production (LVP) mix following the expiration of many incentive programs that favored small vehicles with low safety values. The operating margin was expected to be at least 7%, excluding restructuring charges.

Zacks Investment Research

(ALV) Autoliv Earns Smart Safety Products

In the last three years, Geely, similar to other Chinese automakers, has been struggling hard to enhance its global profile by upgrading its technology to the international standards. In this effort, the company has rejected 385 companies from among its pool of suppliers.

Geely is also a preferred bidder for Ford’s (F) Swedish brand, Volvo. So far, Geely has submitted the only concrete bid for the unit. Media reports have disclosed that Geely valued the unit at close to $2 billion.

Geely aims to complete its acquisition of Volvo in early 2010. The deal is backed by the Beijing Government. Three major Chinese banks, including Bank of China, China Construction Bank and Export-Import Bank of China have agreed to extend loans to Geely for the deal.

Recently, China’s fifth largest automaker, Beijing Automotive Industry Holding Group (BAIC), has agreed to buy technology from General Motor’s Swedish brand, Saab Automobile. According to the deal, BAIC will buy the rights to certain powertrain, engine and gear-box technology for Saab’s 9-5 and 9-3 sedans.

BAIC showed its interest in Saab in order to upgrade its own technology and expand production. Due to the lack of in-house brands, BAIC has decided to set up production in China based on an older generation of Saab vehicles.

Zacks Investment Research

(JCI) Johnson Controls Wins Chinese Carmaker Parts Deal

At more than 231,000 shares, volume for ARGN is exceeded the daily average at nearly 130,000.

In late October, the company announced third-quarter results that included EPS above the Zacks Consensus Estimate, sending earnings estimates higher at the time.

Amerigon develops products based on its advanced, proprietary, efficient thermoelectric (TE) technologies for a wide range of global markets and heating and cooling applications. Its principal product is the proprietary Climate Control Seat® (CCS®) system, a solid-state, TE-based system that permits drivers and passengers of vehicles to individually and actively control the heating and cooling of their respective seats.

It is part of the Auto/Truck-Orig industry. There is only 1 other company from this space on today’s Zacks #1 Rank List: Fuel Systems Solutions, Inc. (FSYS).

Earnings Estimates for Amerigon

Earnings estimates have been steady over the past month for Amerigon. However, they remain well above levels from 2 months ago.

The Zacks Consensus Estimate for this year is at 1-cent per share, marking a move to profitability for the guidance as it was expecting a nickel loss 60 days ago.

Meanwhile, the Zacks Consensus Estimate for next year suggests a sharp year-over-year profit growth to 18 cents per share, which is up a nickel, or more than 38%, from 2 months ago.

Third Quarter

In late October, Amerigon announced third-quarter earnings per share of 5 cents, which bettered the Zacks Consensus Estimate of a penny by as much as 400%. It also beat the year-ago result of 3 cents.

In the past 4 quarters, ARGN has beaten twice, matched once and missed once.

ARGN also reported that product revenues reached $18.4 million, or 11% better than the year-ago performance. It also beat the previous quarter’s result. The increase in revenues was attributed to higher sales from new introductions of vehicles offering the CCS systems and the addition of a rear seat option on certain existing vehicles.

“While automotive production levels are not back to 2007 levels, we are seeing improvement and potential strengthening in the automotive industry,” said Amerigon President/CEO Daniel R. Coker.

“This coupled with the expected launch of CCS systems in additional vehicles in the coming months, leads us to believe we can return to overall growth for 2010,” he continued.

Zacks Investment Research

(ARGN) Top Performer for Fri: Amerigon – Zacks #1 Rank Top Performers

GM has revealed the restructuring actions to cost about 9,000 jobs across Europe in order to reduce output by about 20%. The company had commented that it would require €3.3 billion ($4.9 billion) to restructure its European operations, a part of which will be sourced from the governments. Opel/Vauxhall constitutes about 48,000 employees in Europe, half of them located in Germany.

GM’s ownership in Opel took a twist last month when the automaker halted its plan to sell a 55% stake in Opel to Magna (MGA), backed by Russia’s Sberbank, and decided to continue running the unit on its own.

GM had been in a dilemma while choosing Magna as the preferred bidder for Opel. The German Government preferred Magna, which had promised not to close any of the four Opel plants in the state. The deal was supported by a €1.5 billion ($2.15 billion) Government-backed bridge loan.

However, with Magna GM was afraid of losing Opel’s technology to the Russian car industry. If Magna had won the deal, GM may have lost Russia’s increasingly important market for its models such as Chevrolet. Secondly, it would have lost the Opel engineers, who are integral to GM’s overall strategy. Magna and Sberbank were planning to manufacture Opel cars in Russia with the biggest automaker in the nation – Gaz Group – jointly owned by the tycoon Oleg Deripaska and Avtovaz (partly owned by France’s Renault).

A 13-member Opel/Vauxhall Trust Board was formed before GM’s bankruptcy in June to decide the fate of the unit. The German Government held 65% of the unit and GM held 35%. The German Government’s holding has now returned to GM as the automaker repaid €1.5 billion ($2.3 billion) in German government bridge loan, granted earlier this year to keep Opel afloat.

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(MGA) General Motors to Cut Jobs in Opel Unit

Standard and Poor’s has revised the credit rating to “BBB/A-2 with a stable outlook” from “BBB-/A-3 with a stable outlook.” Meanwhile, Moody’s Investor Service has raised its outlook to stable from negative while the credit rating remained P-2.

In the third quarter of the year, Autoliv has shown a profit of $33.7 million or 37 cents per share, after reporting losses for the preceding three quarters. The company has also beaten the Zacks Consensus Estimate of 24 cents per share. The company believed that higher light vehicle production from the “Cash for Clunkers” program and other stimulus packages have boosted its earnings.

Autoliv had cash and cash equivalents of $430 million as of Sept. 30, 2009, which more than doubled from $214 million in the year-ago period. Long-term debt amounted to $1.19 billion as on that date, reflecting a debt-to-capitalization ratio that stood at 33%. The company has significantly reduced its capital expenditures to $90 million in the first nine months of 2009 from $202 million in the year-ago period.

Autoliv, based in Stockholm, Sweden, is a holding company operating through two principal subsidiaries: Autoliv AB and Autoliv ASP. The company manufactures occupant restraint systems for automobiles and has a product portfolio consisting primarily of safety airbags, seat belts and steering wheels. We continue to recommend the shares of the company as Outperform.

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(ALV) Autoliv Sees Credit Ratings Upgrades

Magna will manufacture the frames at its Cosma unit in St. Thomas, Ontario, and the Saltillo plant in Mexico. The St. Thomas plant has been manufacturing frames for General Motors (hereafter, GM) since 1999 and the Saltillo plant currently builds the GMT 900. The Canadian auto parts maker has not disclosed the value of the deal. Magna’s relationship with GM has suffered over the former’s acquisition of the Opel/Vauxhall business in Europe from the latter.

GM had granted a preliminary approval to sell a 55% stake in Opel to Magna, backed by Russia’s Sberbank. However, the Detroit-based automaker scrapped the deal recently in order to retain the unit. GM had been in a dilemma while choosing Magna as the preferred bidder for Opel. The German Government preferred Magna as it had promised not to close any of the four Opel plants in the state.

The Magna deal was supported by a €1.5 billion ($2.15 billion) German Government-backed bridge loan. However, GM was afraid of losing Opel’s technology to the Russian car industry. Thus, if Magna had won the deal, GM may have lost Russia’s increasingly important market for its models, such as Chevrolet. Secondly, it also feared losing the Opel engineers, who are integral to GM’s overall strategy.

Magna and Sberbank were planning to manufacture Opel cars in Russia with the biggest automaker in the nation – Gaz Group – jointly owned by the tycoon Oleg Deripaska and Avtovaz (partly owned by France’s Renault).

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(MGA) Magna International Bags General Motors Contract

Earlier this year, Delphi has announced its plan to exit from its OPS business in North America , Europe and Asia by the end of the year. The transaction is expected to close by Dec 31.

After the acquisition, Autoliv will take control of Delphi ’s airbag and seatbelt assets in North America , which will be consolidated into the former’s existing facilities. Autoliv will also gain control of Delphi ’s steering wheel operations in Matamoros , Mexico .

The OPS business has customers such as General Motors, Hyundai (HYMLF), Ford (F), Daimler (DAI) and Navistar (NAV), with expected combined sales of $125 million in 2010.

In the third quarter, Autoliv returned to profitability with a net income of $33.7 million or 37 cents per share after reporting losses for the preceding three quarters. With this, the Sweden-based supplier of automotive safety systems has also beaten the Zacks Consensus Estimate profit of 24 cents per share.

Autoliv credited higher light vehicle production from the “Cash for Clunkers” program and other stimulus packages to have boosted its earnings. The company expects its organic sales for the upcoming quarter to grow by more than 10% due to an expected rebound in the European light vehicle production mix following the expiration of many incentive programs that favored small vehicles with low safety value.

We continue to recommend the shares of Autoliv as Outperform, driven by better-than-expected earnings and growth-oriented acquisition strategy.

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(ALV) Autoliv to Acquire Assets From Delphi

Third-Quarter Results

Sales were up 75% from last year to $64.7 million. Earnings also came in strong at 28 cents per share, 12 cents ahead of the Zacks Consensus Estimate. The company has beat in each of the last 3 quarters by an average of 82%.

The company said noted its cash balance increased 23% from last year to $45.9 million, while its stockholder equity was up 18% to $123.7 million.

Bullish Guidance

We haven’t seen estimates advance yet, but the company did offer bullish guidance, saying it expects sales to increase by 40% for 2009.

The Chart

This Zacks #2 rank stock has been on fire over the last 5 months after bottoming out around $5 in early summer. Shares spiked higher on the earnings surprise but have since pulled back a bit, take a look below.

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(CAAS) China Automotive Systems, Inc. – Earnings Beat Consensus by 75%

The loss was attributed to incremental tax expenses during the quarter due to the inability to recognize the tax benefit of losses in certain countries. However, the loss was narrower than the Zacks Consensus Estimate of 32 cents per share.

Sales in the quarter totaled $984 million, a decline of 36% from the year-ago level of $1.5 billion. This was driven by continued weakness across the global markets. However, sales increased by 4% compared to the previous quarter of fiscal year 2009 due to improved conditions in global markets, particularly in China, India and Brazil.

Cost Reductions

ArvinMeritor achieved cost savings of $195 million in fiscal 2009, exceeding the target of $125 million under its Performance Plus plan. The cost savings were helped by layoffs and temporary salary reductions, curtailment in capital spending, extended manufacturing shutdowns, elimination of training programs, suspension of the quarterly dividend and elimination of all non-critical discretionary spending.

The company also announced the closure of its assembly, machining and casting facility in Carrollton, Kentucky and the braking systems facility in Tilbury, Ontario, Canada.

Divestitures

ArvinMeritor completed the sale of its entire ownership interest in Gabriel de Venezuela and Meritor Suspension Systems Company joint ventures, Wheels business and Gabriel Ride Control Products in North America.

These transactions largely completed the divestiture of Chassis Systems business under the company’s Light Vehicle Systems (LVS) business segment. The divestments reduced the company’s overall light vehicle business to 25% of total sales at the end of its fiscal year.

Business Segments Redefined

ArvinMeritor redefined its reporting segments following the recent divestiture of most of its LVS businesses. For continuing operations, the company has informed that it will report results as defined within Commercial Truck, Industrial, Aftermarket & Trailer and Light Vehicle Systems. Of these four segments, the first three have been considered core to the company.

Financial Position

ArvinMeritor had cash and cash equivalents of $95 million as of Sep 30, 2009. Long-term debt amounted to $1.1 billion as of that date. The company had a shareholder deficit of $1.3 billion as of the same period.

Free cash flow was $22 million in the fourth quarter compared to $103 million in the prior fiscal year quarter. The company had $95 million in cash balance and an unutilized commitment of $611 million under its revolving credit facility as of Sep 30, 2009.

In fiscal 2009, ArvinMeritor had a net cash outflow of $295 million from operating activities, in sharp contrast to an inflow of $163 million in the previous fiscal year. Meanwhile, capital expenditure reduced to $111 million from $138 million in fiscal 2008.

Looking Ahead

In the upcoming fiscal year, ArvinMeritor expects revenue to be higher and free cash flow to breakeven. In addition, the company expects capital expenditures in the range of $90 million to $110 million.

Despite its efficient cost management and commendable global footprint, we believe difficult market conditions across the global automotive markets will continue to adversely affect the company. This has led us to maintain our Neutral recommendation for the stock.

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(ARM) ArvinMeritor’s Loss Deepens

The profit was also significantly higher than the Zacks Consensus Estimate of 14 cents per share. The Michigan-based manufacturer of advanced technology products and services for the automotive markets commended its restructuring and cost containment actions for its impressive rise in profit.

Operating income for the quarter went up to $165 million from $44 million in the prior-year period. Apart from restructuring and cost containment actions, this was driven by lower raw material prices and favorable non-recurring supplier and customer settlements.

During the quarter, TRW continued to reduce its salaried workforce by an additional 200 employees, which brings the total salaried reductions to about 3,000 since the commencement of programs last year.

However, sales of $3.1 billion, a decline of 13.5%, were adversely affected by lower sales in most geographic regions resulting from reduced vehicle production volumes. This apart, currency movements also had a negative impact on sales.

Financial Position

TRW had cash and cash equivalents of $474 million as of Oct. 2, 2009, a decline from $756 million a year ago. Long-term debt amounted to $2.5 billion as on that date. This reflected a long-term debt to capitalization ratio of 60%.

In the nine months ended Oct. 2, 2009, TRW had a net cash outflow of $57 million from operating activities compared to an inflow of $4 million in the year-ago period. The decline in cash position was attributed to lower operating income, partially offset by lower working capital requirements. Capital expenditures reduced to $121 million from $338 million in 2008. The company had free cash outflow of $178 million in the above period compared to $334 million in the prior-year period.

Road Ahead

TRW anticipates full-year production to gross 8.6 million units in North America and 16.3 million units in Europe. Based on these revisions and the expectations for foreign currency exchange rates, full-year sales are expected to be $11.4 billion, a bit higher than the Zacks Consensus Estimate of $11.1 billion.

We believe TRW’s innovative product portfolio is capable of generating top- and bottom-line growth. It has been successful in its restructuring and cost-containment actions to mitigate the impact of the industry-wide downturn as reflected in the better-than-expected third-quarter results. However, the company still needs to go through the long and gradual process of recovery in the industry. Due to these factors, we recommend the shares of the company as Neutral.

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(TRW) TRW Automotive Posts Robust Profit

OK, Halloween is over, but some of the best-looking industries according to the Zacks Rank are those that not long ago were considered part of the living dead.

Case in point, is the top performing sector — Auto-Truck-Tires. Out of 206 industries tracked, the sector has five of them, and the worst of the bunch, Foreign Autos, ranked tied for 89th with a composite score of 2.88. None of the groups were at the very top, but all were better than average.

The original equipment parts makers (although one could argue about the grouping of some of the names) scored best with a rank of 44 and a composite score of 2.62. Three of the 28 firms in the industry, Fuel System Solutions (FSYS), Oshkosh Truck (OSK) and Wabco Holdings (WBC), hold the coveted Zacks #1 Rank, while an additional 10 have #2 ranks.

While not part of the sector, the Auto Dealers (which are included in Retail) are tied for the 48th spot with the Domestic Automakers, both with composite ranks of 2.67. Among the dealers, CarMax (KMX), Group 1 Auto (GPI) and Penske (PAG) all hold #1 ranks, while Ford (F) holds a #2 rank.

The Construction sector was also left for dead not that long ago, but it is tied for third place among the sectors. It is more of a mix by industry, but has some of the very strongest, including some very big surprises, including the Mobile Home/RV industry, which is tied for 3rd place in the rankings thanks to #1 ranks from Cavco (CVCO) and Thor (THO), both of which reported earnings that were more than twice as high as expected.

Who is the RV industry tied with? Two other building related areas: Lighting Fixtures, led by LSI Industries (LYTS), and Paint, led by RPM International (RPM).

So what does this say about the economy? Mostly good things. It says that the stimulus is working and helping out some of the most depressed sectors. Also that these sorts of durable goods-type firms are among the ones seeing the greatest productivity gains (productivity in durable goods rose at over 20% in the third quarter), and those gains are translating into gains at the bottom line.

Over the long term, I have some doubts about the sustainability of such a move, given the need for the consumer to tighten their belts and save more. However, the bar got set extremely low and it was an easy hurdle to clear. Easy money and low interest rates mean that not only were they able to survive, at least for the short term — they look like they will be able to thrive.

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(FSYS) The Return of the Living Dead – Zacks Industry Rank Analysis

The maker of alternative fuel components blew by the Zacks Consensus Estimate of 43 cents, reporting 77 cents per share in the quarter. It was the third consecutive earnings beat. Revenue rose 10% to $116.2 million.

The company did a record 47,000 systems installations and anticipates that demand from Europe will continue. For 2009, it expects revenue between $415 and $425 million.

Analysts have not yet revised estimates to reflect the big earnings surprise. The 2009 Zacks Consensus Estimate is currently calling for $1.68 per share. In 2010, analysts are expecting 18.56% earnings growth.

Fuel Systems is a Zacks #2 Rank (buy) stock. Earnings are expected to grow 27.33% over the next five years.

1-Year Chart:

The stock spiked off of the big earnings surprise and is now trading at new 52-week highs.

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(FSYS) Fuel Systems Solutions Inc. – Smashed Past the Estimates

Net sales dipped 22% to $409.6 million. However, in absolute terms, it is the highest quarterly sales of the year. The lower sales were on the back of a 18% decline in customer production volumes for the North American light truck and sport utility vehicle (SUV) programs that American Axle currently supports for GM and Chrysler.

American Axle’s content-per-vehicle (measured by the dollar value of its product sales supporting GM’s North American light truck and SUV programs and Chrysler’s Heavy Duty Dodge Ram pickup trucks) fell to $1,396 from $1,453 in the third quarter of 2008. Non-GM sales constituted 18.3% of total sales in the reported quarter. The company’s non-GM sales stood at 21.6% of total sales on a year-to-date basis.

American Axle had cash and cash equivalents of $173 million as of Sept. 30, 2009, compared to $198.8 million as of Dec. 31, 2008. Long-term debt amounted to $1.18 billion as of Sept. 30, 2009.

In the first nine months of 2009, American Axle had a net cash outflow from operating activities of $19.7 million, an improvement of $77.6 million from the prior-year period. Meanwhile, capital expenditures increased to $115.5 million from $102.8 million in the year-ago period.

American Axle is a Detroit, Michigan-based company and a leader in the supply of driveline systems, modules and components for the light vehicle market. The company manufactures axles, driveshafts and chassis components for light trucks, SUVs and passenger cars. It was hit badly by the bankruptcies of General Motors and Chrysler due its high reliance on these companies. We continue to recommend the shares of the company as Neutral.

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(AXL) American Axle Reports Better than Expected Results

However, lower original equipment (OE) production volumes in Europe, North America and Australia as well as declining European aftermarket sales squeezed revenues by 16% to $1.25 billion. The decline was partially softened by stronger OE production volumes in China and South America as well as higher North American aftermarket sales. In fact, revenue increased 13% from $1.11 billion in the previously reported quarter.

Gross margin of 16.8% depicted an improvement versus 13.3% a year ago despite higher year-over-year restructuring costs in the reported quarter. This was driven by the benefits of restructuring actions implemented in 2008, cost reductions including temporary salary cutback, efficiency improvements, managing material costs and lower substrate sales as a percent of revenue versus a year ago.

Regional Performance (excluding substrate sales & currency fluctuations)

In the North American market, revenue slipped 9% to $433 million. This can be attributed to a 15% decrease in OE revenue to $282 million due to lower industry light vehicle production. A 6% increase in aftermarket revenue to $151 million due to stronger ride control volumes helped offset the decline.

In the European market, revenue shrank 10% to $411 million. Both the OE and aftermarket sales were hampered compared to the year-ago level. OE revenue fell 10% to $310 million, driven by lower production volumes, primarily on emission control supplied platforms. Meanwhile, aftermarket revenue declined 9% to $101 million due to lower sales in both product lines, especially heavy duty ride control sales in Eastern Europe.

The South American and Indian markets performed well, with a 3% rise in revenue to $101 million. This was attributed to higher OE production volumes.

The Asian market saw an impressive 51% improvement in revenue to $81 million, driven by higher OE production volumes in China. However, revenue of $32 million generated from the Australian market fell short of the year-ago quarter by 29% due to lower industry light vehicle production.

Financial Position

Tenneco had cash and cash equivalents of $137 million as on Sept. 30, 2009. Long-term debt amounted to $1.4 billion as of that date.

In the first nine months of the year, Tenneco’s cash flow from operations advanced to $108 million from $34 million in the year-ago period. Working capital improvements, particularly in inventory as well as increased use of the available accounts receivable securitization programs, helped improve the cash flow.

Capital spending was reduced to $86 million in the above period from $192 million in the year-ago period. For 2009, Tenneco expects its capital spending to be $125 million, significantly down from $233 million in the previous year.

At Sept. 30, 2009, Tenneco’s leverage ratio under its senior credit facility was 5.17, below the maximum level of 7.90. The interest coverage ratio was 2.16, above the minimum of 1.55. At the end of the quarter, the company had an EBITDA cushion of $74 million against its tightest ratio.

Going Forward

Tenneco has expressed confidence in its cash flow and earnings performance by restoring salaries for all salaried employees worldwide, effective Oct. 1, which had been reduced approximately 10% on Apr. 1 this year. The company is banking on robust light vehicle production growth in China and India. However, we believe sizable production cuts in the OE market will continue to mar the company’s results. For 2009, the Zacks Consensus Estimate reflects a loss of 76 cents per share. Thus, we stick to our Neutral recommendation for the stock.

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(TEN) Tenneco’s Earnings Results Improve

In the last quarter, the Wisconsin-based supplier of automotive interiors, batteries and other control equipment returned to profitability after posting losses since the first quarter of fiscal 2008. However, the profits were down from $511 million or 73 cents per share in the fourth quarter of last fiscal year.

Consolidated net sales tumbled 15% to $7.9 billion. Segment income decreased to $409 million from $605 million in the prior-year quarter.

Segment Results

Sales in Automotive Experience declined 14% to $3.5 billion, due to lower production volumes in North America and Europe. Excluding the impact of foreign currency, the decline was 12%. The segment returned to profitability with an income of $77 million due primarily to the company’s improved cost structure.

Sales in Building Efficiency fell 16% to $3.3 billion due to lower systems and service revenues in all of the company’s global markets, reflecting the overall slowdown in construction spending and the continued deferral of discretionary maintenance and retrofit projects.

In Eastern Europe, the Middle East and Latin America, revenue declines ranged from 15% to 17%, excluding the impact of foreign exchange. The segment reported an income of $138 million, down from $316 million in 2008 quarter. This was attributed to residential HVAC warranty charge, amounting to $105 million.

Sales in Power Solutions sales shrank 17% to $1.1 billion. Excluding the impact of lower lead prices and currency translation, sales were comparable to last year, as were unit shipments. Segment income was up 37% to $194 million from $142 million last year due to operational efficiencies and a favorable product mix.

Full-Year Results

For fiscal 2009, Johnson Controls has revealed a loss of $338 million or 57 cents per share compared to a profit of $979 million or $1.63 per share in the prior fiscal year. The results were disappointing compared to the Zacks Consensus Estimate profit of 46 cents per share. Consolidated net sales declined 25% to $28.5 billion.

Financial Position

Johnson Controls had cash and cash equivalents of $761 million as of Sept. 30, 2009. Long-term debt amounted to $3.2 billion as on that date. The long-term debt-to-capitalization ratio stood at 26%.

In fiscal 2009, Johnson Controls’ net cash flow from operating activities declined to $917 million from $1.9 billion in the previous fiscal. Meanwhile, capital expenditures decreased to $647 million in fiscal 2009 from $807 million in fiscal 2008.

Outlook

Johnson Controls anticipates a sales increase of 9% to $31 billion for the upcoming fiscal year. Earnings are expected to increase to $1.35-$1.45 per share, marginally lower than the Zacks Consensus Estimate of $1.49 per share. Sales, earnings and margin improvements are expected in all three of its businesses in 2010. These appraisals are backed by higher global automotive production forecasts in 2010 compared to 2009 and a resumption of higher growth rates in global emerging markets.

Despite these positive assumptions, we are concerned about weakness in its North American business, high inventory levels at the OEMs, a weakening product mix and raw material/price squeeze. Thus, we recommend the shares of Johnson Controls as Neutral.

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(JCI) Johnson Controls Maintains Profit

Company Description

China Automotive supplies power steering components to Chinese automakers. The company offers systems for all types of vehicles, from passenger cars to commercial vehicles.

Crushed Expectations

In August China Automotive reported second-quarter results that included earnings of 24 cents per share, 11 cents higher than the Zacks Consensus. The earnings surprise was driven by record sales of $62.5 million, a 34% increase.

Net income rose 30% to $6.1 million. Earnings per share did rise despite the roughly 10% increase in outstanding shares.

Great Market

China has been making headlines all year with its rapid growth and the automotive industry is not exception. The country is now outpacing the U.S. and has become the world’s largest auto market.

Estimates Pop

Following the quarterly report, the full-year Zacks Consensus Estimate for 2009 jumped 11 cents to 53 cents. In past week, another estimate revision raised the average forecast another penny to 54 cents.

Next year’s estimates followed the same pattern and now average 63 cents. These projects would mean year-over-year earnings growth of 11.5% and 17.8%, respectively.

The Chart

Shares of CAAS are surging this earnings season, as are many other Chinese companies. The stock has a lot of momentum heading into China Automotive’s earnings report on Nov 11.

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(CAAS) China Automotive Systems Inc. – 2009 Estimates Jump

Autoliv believed higher light vehicle production from the “Cash for Clunkers” program and other stimulus packages boosted its earnings. Consolidated net sales declined 14% to $1.32 billion while organic sales (i.e., sales excluding currency effects and acquisitions/ divestitures) fell 12%.

Segment Performance

Sales of airbag products decreased 12% to $858 million. Organic sales in the segment dipped 11% compared to an 18% decline in light vehicle production (LVP) in the Triad (i.e. North America, Europe and Japan) due to new business with Ford (F), Volkswagen, Chevrolet, Opel, Suzuki, Nissan (NSANY), Toyota (TM) and Great Wall.

Sales of seatbelt products dropped 17% to $468 million. Organic sales in the segment fell 13% compared to a 21% decline in global LVP. This primarily reflected Autoliv’s greater dependence on advanced higher-value-added seatbelts, particularly for the European and North American markets.

Regional Performance

Sales in Europe dipped 21% to $634 million. Organic sales in the region decreased 16%, less than the 12% decline in European light vehicle production, due to the government’s scrapping incentives that favored smaller vehicles.

Sales in North America dropped 16% to $310 million. Organic sales in the region declined 11% while the North American LVP dropped almost twice as much. The company’s better-than-market performance was primarily due to new business for Ford’s new F-Series, Chrysler’s Dodge Ram, Chevrolet’s Traverse and Equinox, and Toyota’s Rav4 and Venza.

Sales in Japan dipped 25% to $136 million. Organic sales declined 40% due to the 25% drop in Japanese LVP. Sales in the region were also affected by the production decline for most of the premium cars, SUVs and other vehicles with higher safety value for export to North America and West Europe.

Sales in the Rest of the World increased 25% to $246 million. Organic sales increase of 32% was better than the strong growth in the region’s LVP of 21%. Autoliv’s market share gains in the region reflected new business in China (for Suzuki, Buick, Chevrolet, Daewoo, Nissan, Volkswagen, Audi, Honda, Kia, Great Wall and Geely) and in India (for Mahindra).

Financial Position

Autoliv had cash and cash equivalents of $430 million as of Sept. 30, 2009. Long-term debt amounted to $1.19 billion as on that date. The long-term debt-to-capitalization ratio stood at 33%.

In the first nine months of 2009, cash flow from operations decreased $182 million to $244 million. Capital expenditures stood at $90 million as of the above period compared to $202 million in the year-ago period.

Outlook

Autoliv expects its organic sales for the upcoming quarter to grow by more than 10% due to an expected rebound in the European LVP mix following the expiration of many incentive programs that favored small vehicles with low safety value. The company’s organic sales in China are also expected to continue growing faster than the country’s LVP due to many new market launches as mentioned above. The company anticipated an operating margin, excluding restructuring costs, of at least 7%.

For the full year 2009, consolidated sales are anticipated to decline by 25% based on the assumption that organic sales will outperform LVP in North America and Western Europe by 5%. The full-year operating margin, excluding restructuring charges, is expected to exceed 2%.

We recommend the shares of Autoliv as Outperform.

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(ALV) Autoliv Returns to Profitability

The management has commented that the company expects to earn 40 to 42 cents per share for the fourth quarter ended Sep 30 compared to the Zacks Consensus Estimate of 39 cents per share. It expects sales of $7.9 billion for the quarter.

Consolidated net sales are expected to increase 9% to $31 billion in fiscal 2010. Earnings per share are expected to lie in the range of $1.35 and $1.45, slightly higher than the Zacks Consensus Estimate of $1.44.

The Wisconsin-based company has stated that it expects sales, earnings and margin improvements during the next fiscal in all of its businesses – automotive, power solutions and building efficiency. In the Automotive Experience business, the company expects revenue to increase 13% as it benefits from production increases in North America (14%) and China (19%), besides a significant number of new seating and interiors program launches in Europe .

Sales for the Power Solutions business are expected to rise 17% (6% excluding the impact of higher lead prices), driven by volume growth across all regions resulting from market share gains and higher auto production levels.

Building Efficiency business is expected to register a revenue growth of 3% due to growth in the emerging markets and an increase in demand.

Johnson Controls has estimated capital expenditure during fiscal 2010 to total $625 million–$675 million to boost capacity in emerging markets, launch new auto businesses and fund improvements in the battery business.

The company has revealed that it has minimal debt due this fiscal and about $1 billion maturing in fiscal 2011.

We recommend the shares of Johnson Controls as Neutral with a target price of $27.

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(JCI) Johnson Controls Anticipates Growth for 2010

The Wisconsin-based supplier of automotive interiors, batteries and other control equipment will supply chillers that use HFC-134A refrigerant, which does not contribute to ozone depletion. They are manufactured in San Antonio, Texas.

The York brand is a proven market leader in energy efficiency. Al Salem Johnson Controls will also supply radiators for the chillers, making this one of the company’s largest single orders in its history. The company achieved the first and largest-ever chiller order in the world for the Pearl Qatar project. It has also succeeded in winning the Bahrain Bay project.

Johnson Controls has won notable contracts over the years. The State of Michigan had awarded $148.5 million in state tax breaks to the Johnson Controls–Saft joint venture to build the first U.S. production facility for lithium-ion batteries in Holland , Michigan .

Johnson also bagged lithium-ion battery contracts from the U.S. Advanced Battery Consortium and Ford Motor (F). Johnson Controls was also selected by the U.S. Department of Energy as one of 16 companies to participate in an $80 billion contract to improve energy efficiency projects in Federal buildings.

The company expanded its sales force to take advantage of the significant growth opportunities for efficiency retrofits in the government market.

We recommend the shares of Johnson Controls as Neutral with a target price of $27.

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(JCI) Johnson Controls Bags Record-Breaking Contract

According to China Association of Auto Manufactures, BYD F3/F3R was the top selling single car model for a quarter and for four single months during the first eight months of 2009.

Wonder Auto already supplies starters to Shenzhen BYD under an agreement entered in December last year. This along with the new agreement will help the company to bring at least 100,000 extra unit sales in 2010.

The China-based manufacturer of automotive electrical parts, suspension products and engine accessories enjoys a strong domestic market share in alternators and starters. The company is strategically positioned in the fast-growing sub-segments in these markets. Demand for alternators and starters have grown, driven by the quick rise in the number of cars in use and miles driven.

We recommend the shares of Wonder Auto as Neutral with a target price of $11.00.

Zacks Investment Research
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(WATG) Wonder Auto Technology Wins Chinese Deal

Great Quarter

On Aug 6 the company released a great earnings report. Revenue was down slightly to $92.3 million, but would have been a gain without forex impact. Profit was $28.6 million, flat year-over-year, but had better margins. Net income was up $2.8 million to $7.4 million, or 46 cents per share.

EPS was 17 cents higher than last year’s figure and topped the Zacks Consensus Estimate by 13 cents.

Estimates Pop

Following the report, analysts polled by Zacks began raising their estimates. Currently the full-year estimate for 2009 is $1.63, up 23 cents. Next year’s estimates are averaging $1.96, up from $1.74.

These figures represent a 5% dip in earnings this year, but a 20% increase in 2010.

The Chart

Shares of FSYS are at levels that they have not seen in almost a year. There could be some resistance here, but if estimates continue to rise the stock should have no pushing through. Take a look at the chart below.

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(FSYS) Fuel Systems Solutions’ Estimates Jump

The companies are jointly integrating UQM’s PowerPhase® electric propulsion system with BorgWarner’s 31-03 eGearDrive™ transmission for the all electric front-wheel drive five-passenger sedan, CODA, developed by California-based electric vehicle maker, Miles EV. The new system is scheduled for introduction in the California market in 2010.

The BorgWarner 31-03 eGearDrive™ transmission is best suited for mid-range electric vehicles. When mated with the UQM® PowerPhase® electric propulsion system, the new system will propel a mid-sized passenger vehicle at highway speeds economically and with high powertrain efficiency.

Michigan-based BorgWarner is a leading manufacturer of powertrain products for the world’s major automakers. The company’s products include four-wheel-drive and all-wheel-drive transfer cases, primarily for light trucks and sport utility vehicles or SUVs. It also manufactures automatic transmission and timing chain systems. Its largest customers include Volkswagen, Ford (F) and Daimler (DAI).

BorgWarner was the first – and the only, until now – to market dual clutch transmission (DCT) system, a product that improves fuel efficiency by 15%. Historically, BorgWarner has grown 9% faster than the automotive industry. Management expects revenues of $2.1 billion from the new powertrain business for 2009 through 2011, an 8% increase over its previous three-year new business.

Demand for BorgWarner’s environmentally friendly technologies such as turbochargers and DCT system technology continue to drive its growth rate. About 50% of the new business is expected to come from Europe and 20% from North America over the next 3 years. Backed by continuous expansions, the company expects the remaining 30% from Asia, especially Korea and China.

We continue to recommend the shares of BorgWarner as Neutral.

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(BWA) BorgWarner Collaborates with UQM on Alternative Energy Technology

In the second quarter, the manufacturer of pollution and ride control systems for cars reported a net loss of $10 million or 22 cents per share on an adjusted basis, much better than the Zacks Consensus Estimate of a loss of 50 cents per share.

Further, Tenneco delivered its best gross margin performance since the third quarter of 2006. Gross margin was 17.5% during the quarter, an improvement from 16.2% a year back and up from 14.5% in the prior quarter. The gross margin improved, despite a 24% decline in year-over-year revenues, on the back of restructuring savings and cost reductions to offset a portion of the negative impact from lower original equipment production volumes and related manufactured fixed cost absorption.

As of June 30, 2009, Tenneco’s leverage ratio under its senior credit facility was 5.77, below the maximum level of 7.35. The interest coverage ratio of 2.21 was above the minimum level of 1.85.

Standard & Poor’s believed that Tenneco’s efficient cost reduction efforts and restructuring activities would justify its outlook revision.

We maintain our Neutral recommendation on the shares of Tenneco.

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(TEN) S&P Boosts Tenneco’s Outlook

BorgWarner friction plates and materials are used at key clutch positions to meet ZF’s high requirements for efficiency and shift performance. It helps reduce drag losses, enabling the transmission to achieve improved fuel economy and better performance. The friction plate technology also enables neutral idle control (NIC) to further enhance fuel economy.

Growing demand for the company’s strong technology-based product portfolio, impressive product launches and cost reduction efforts drive our outlook for BorgWarner. Demand for front-wheel drive systems is rising in North America, as is demand for automatic transmission components and systems in Europe.

BorgWarner expects revenues of $2.1 billion from the new powertrain business for 2009 through 2011, an 8% increase over its previous three-year new business. Demand for the company’s environmentally-friendly technologies such as turbochargers and DCT technology continue to drive its growth rate, which exceeds that of the auto industry. About 50% of the new business is expected to come from Europe and 20% from North America over the next 3 years. Backed by continuous expansions, the company expects the remaining 30% to come from Asia, especially Korea and China.

About 80% of BorgWarner’s new business is expected to be in engine-related products such as turbochargers, ignition systems, emissions products, engine timing systems, variable cam timing modules and thermal systems. The other 20% would relate to transmission modules and all-wheel drive systems including the company’s fuel-efficient DualTronic transmission technology and electronic InterActive Torque Management systems. The company expects a tenfold increase in demand for DualTronic transmission modules by 2013 to about 5 million units, which will be a key component for its growth.

We continue to recommend the shares of BorgWarner as Neutral.

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(BWA) BorgWarner Wins New Business

Opel deal had been a bipartite race between two suitors, Canada-based auto parts supplier Magna International (MGA) — backed by Russia’s Sberbank — and Brussels-based industrial investment group RHJ International. Of them, GM’s Board of Directors rejected Magna’s offer on August 21, and RHJ International was opposed by the German government with an apprehension of higher job losses.

GM’s board has now instructed its management to consider new options for Opel, including putting together a $4.3 billion financing plan to rebuild the business rather than divesting it. The company intends to raise funds for the unit from the U.S. and other European governments, including the U.K. and Spain. The company is also vying for a less-likely option, that is, liquidation of the business.

Political factors are playing a key role in the deal. Both Germany and Russia are in favor of Magna. This is because Magna has vowed to make most of its job cuts outside Germany if it wins the deal. On the other hand, any support from U.S. Government for the unit would imply U.S. taxpayers bailing out a German company, which could be negative for the U.S. political scenario.

GM requires clearance from Opel/Vauxhall Trust Board, which holds a 65% stake and a German Government task force for the deal to go through. The five-member Trust Board set up in June includes two voting representatives of the German Federal and Regional Governments and two from GM. On Tuesday, GM’s chief negotiator John Smith met German Government’s Opel task force without releasing a statement.

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(MGA) General Motors Rethinking Opel Plans

The fund typically invests in equity and debt securities, including defaulted securities, with an emphasis on lower-quality debt securities. It may invest in both domestic and foreign issuers.

Shareholders have to make a minimum initial investment of $2,500 to enter this Zacks#1 Rank (“Strong Buy”) fund. It has an expense ratio of 0.74%.

Fidelity Select Automotive (FSAVX) seeks capital appreciation. The fund is non-diversified.

The fund primarily invests in securities of companies engaged in the manufacture, marketing or sale of automobiles, trucks, specialty vehicles, parts, tires and related services. It may invest in securities of foreign issuers.

The fund’s key holdings include Johnson Controls Inc. (JCI), Autoliv Inc. (ALV) and BorgWarner Inc. (BWA).

Fidelity Japan Smaller Companies (FJSCX) seeks long-term capital growth through investment in equity securities of Japanese issuers.

The fund normally invests primarily in common stocks of companies with smaller market capitalization. However, it may also invest in securities of Japanese issuers with larger market capitalizations.

The fund has topped the total returns of its benchmark index in the last 1 and 3-year periods. It offers dividends and capital gains annually in December.

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(JCI) Top Fidelity Funds – Mutual Fund Education

Company Description

Standard Motor Products, Inc. manufactures and sells replacement parts for motor vehicles in the automotive aftermarket in the United States, Latin America and Europe. The company was founded in 1919 and has a market cap of $232 million.

Fixing up existing cars instead of buying new has been hot for the last year as consumer spending has buckled under unemployment and general economic weakness. This dynamic helped Standard Motor produce better than expected second-quarter results, reported on August 5.

Second-Quarter Results

Sales were down 8% from last year to $197.5 million, but earnings were better than expected at 27 cents per share, beating the Zacks Consensus Estimate of 14 cents.

The company noted that it was able to counter slightly lower sales with an expansion of gross margin, climbing to 25.5% from 21.7%. Standard also noted that it had saved $13 million in sales and administration costs from last year.

Estimates Up

Earnings estimates spiked after word of the solid quarter hit the street, with the current year adding 16 cents and climbing to 39 cents per share. The next-year estimate stands at 47 cents, a 22% growth projection.

Valuation Conversation

After the big run up, this stock is trading at a pretty steep premium to the overall market with a P/E of 31X.

The Chart

Shares of SMP have been on a big time rally since early March, bottoming out around $1.50 before hitting a recent high at $12.72. Some short-term resistance has developed in this area, take a look below.

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(SMP) Standard Motor Products Inc. – Estimates Are Up – 22% growth projection

The sale is expected to close by the end of 2009. ArvinMeritor’s Wheels business has manufacturing facilities in Limeira, Brazil and San Luis Potosi, Mexico.

ArvinMeritor plans to invest up to $10 million in its commercial vehicle business in Brazil to support expansion into new product segments and new manufacturing technology. Despite the worldwide slump in automotive industry, the company’s production in South America grew by 9% in the last quarter. Meanwhile, the company is also pursuing the sale of its light vehicle systems business, which includes the body systems unit.

ArvinMeritor has a leading position in most of its markets. The company is making drastic cost reductions through its “Performance Plus” initiative. It is also expanding geographically and outsourcing to low-cost countries.

However, difficult conditions in North American and West European automotive markets are primary concerns for the company. The downturn in the auto industry makes us apprehensive about the near-term prospects for auto suppliers. ArvinMeritor has withdrawn its fiscal 2009 financial outlook and suspended its quarterly dividend. High leverage and the risk of non-compliance of the debt covenants due to deteriorating profits are a matter of concern.

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(ARM) ArvinMeritor Sells its Wheels Business

The Botetourt facility, near Bonsack, has been part of the company’s Building Efficiency division, which focuses on mechanical systems for heating, ventilating and air conditioning for the residential (9%) and non-residential buildings (91%) market.

Johnson Controls dismissed nine employees at the plant last April. The shutdown will affect the remaining 44 employees. Workers who stay with the plant through the closing process and get involuntarily terminated will be eligible for severance consideration and other transitional assistance.

The auto-parts manufacturer plans to move operations from Botetourt plant to facilities in Texas, Pennsylvania and Mexico. The plant houses screw compressors and centrifugal compressors for chillers built in Mexico or Texas. It also manufactures rotors used in the production of screw compressors.

Johnson Controls is suffering from a weakness in its North American business, high inventory levels at the OEMs, a weakening product mix and unfavorable raw material pricing. The company reported modestly weaker-than-expected results for the third quarter.

The Building Efficiency segment has been hurt by the overall slowdown in construction spending, lower HVAC equipment volumes and the continued deferral of discretionary maintenance and retrofit projects. Its quarterly net income and sales fell 37% and 14%, respectively. We are concerned about the rapid deterioration in automotive production coupled with the worsening residential market, which is affecting the company.

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(JCI) Johnson Controls Closing Plant

Fitch expects American Axle to finalize an agreement with General Motors (GM), which will bring a one-time payment of $110 million from GM, who will also offer a $100 million term loan, extending through 2013. In return, American Axle will offer GM up to 19.9% of its equity as warrants. The company does not have any debt maturities until its $250 million term loan is due in 2012. However, Fitch does not expect American Axle to generate free cash flow in 2009. The company needs to make a $20 million contribution to pension plan, which remained underfunded by $255 million in 2008. The company also needs to make a $15 million contribution to its retirement plan in 2009.

Fitch expects ArvinMeritor to continue to face difficulties in selling its remaining assets in the light-vehicle segment. The company may also seek a debt covenant relief for the quarter ending Sept 30. Fitch expects ARM’s operating losses and restructuring costs to result in negative cash flows for 2009. ArvinMeritor has no debt maturities until 2011 and the company’s pension is moderately (7%) underfunded. Fitch expects the underfunded status to increase, which could require incremental contributions over the next several years.

Fitch believes that a diverse product offering and geographic distribution should help Tenneco survive the ongoing recession. Like peers, Tenneco was also impacted by the extended production disruptions. However, with the production restarts at the automakers and Tenneco’s restructuring efforts, profits should improve in the second half of 2009. The company does not have any significant debt maturities until 2012 when $700 million of the $830 million of the credit facility expires. Tenneco has a $249 million underfunded pension plan, which is likely to require incremental contributions over the near term.

Fitch’s ratings revision on TRW Automotive reflects improved operating performance, the recent equity issuance, a credit agreement amendment and significant liquidity. TRW recently raised equity and net proceeds were $269 million. One-third of the net proceeds was used to reduce the term loans while the balance was used to lower borrowings on the revolving credit facility. The company has no near-term debt maturities and the revolver extends through 2012. However, the agency expects negative cash flow in 2009.

Fitch had initiated the Rating Watch on Dec 11, 2008 on fears of possible bankruptcies of GM and Chrysler. Following the bankruptcies of the two automakers, the Rating Watch remained in effect due to apprehensions about lower volumes post-bankruptcy.

Fitch expects the global automotive environment to remain challenging in the near term with sales in Europe declining considerably in 2010. However, sales in North America are expected to improve in the second half of 2009 and 2010 on the back of the government’s Cash for Clunkers program, which is nearly completed, aggressive vehicle pricing, consumer access to vehicle financing which was difficult to obtain in the early 2009 and a reduction in dealer inventories. The parts suppliers should also benefit from the significant restructuring actions taken before and during the global automotive slump. With higher production volumes, auto suppliers will be using cash for working capital needs in the second half of the year and Fitch expects most suppliers should have adequate liquidity while production increases.

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(AXL) Fitch Ratings Upgrades Auto Parts Suppliers

As of Jun 30, 2009, Johnson Control had approximately $4.8 billion of outstanding debt, including $450 million of equity units.

Johnson Controls will exchange all of its convertible notes for 89.3855 common shares plus $120 in cash and accrued and unpaid interest per $1,000 of principal notes. The company originally issued $402.5 million of convertible notes.

The company will also exchange up to 8.55 million corporate units, or 95% of its outstanding equity units, for 4.8579 common shares, $6.50 in cash and accrued and unpaid interest on the 11.5% notes due 2042 that make up part of the units.

Soon after Johnson Controls’ second-quarter results in July, Standard & Poor’s Ratings Services took the company off watch for downgrade. Fitch also removed the Wisconsin-based company from Rating Watch Negative and affirmed a Negative rating.

The agencies stated that challenges in Johnson Controls’ Automotive Experience business and weak demand in the non-residential construction markets through 2010 corroborates the negative outlook. This is worsened by high leverage and margin pressure related to lower sales volumes across the major business segments. Low production volumes in Europe and North America and industry restructuring are significant concerns for the company.

A weak construction sector also affects Johnson Control’s Building Efficiency business. The company’s near-term results in the segment are to be pressured by weak non-residential markets in North America and Europe through 2009 and 2010.

However, Johnson Controls has an edge over its competitors, such as Magna International (MGA) and Hastings Manufacturing Company, in being more diverse. Johnson Control’s exposure to the three auto giants – General Motors, Ford Motor (F) and Chrysler – is lower.

The Automotive Experience segment forms less than a third of its profits. Three quarters of sales in the battery business are to the aftermarket, which provides some stability. We expect margins in the segment to benefit from a lower cost structure and the eventual completion of a lead smelter in 2010, which should reduce production costs.

We maintain our Neutral recommendation on the stock with a target price of $27.00.

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(JCI) Johnson Does Debt-Equity Swap

GM sits uncomfortably in the deal amidst the German government’s bias towards Magna. This is because Magna has vowed to make most of its job cuts outside Germany if it wins the deal. Both the suitors had indicated they would cut Opel’s workforce by a fifth – about 10,000 jobs – to make the unit financially viable.

GM is in a dilemma fearing that Magna, backed by Russia’s Sberbank, could capture Opel’s technology for the Russian car industry. Thus, if Magna wins the deal, GM may lose Russia’s increasingly important market for its models such as Chevrolet. Magna and Sberbank are planning to manufacture Opel cars in Russia with the biggest automaker in the nation, Gaz Group – jointly owned by the tycoon Oleg Deripaska and Avtovaz (partly owned by France ’s Renault). This has led GM to favor RHJ for the deal.

The German Government has revealed that funds are only available to Magna as the federal government and various German states have agreed to put up the entire €4.5 billion ($6.4 billion) in credit needed to finance the deal.

GM requires clearance from Opel/Vauxhall Trust Board, which holds a 65% stake and a German Government task force for the deal to go through. The five-member Trust Board set up in June includes two voting representatives of the German Federal and Regional Governments and two from GM.

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(MGA) Opel to Choose Suitor

Company Description

Tenneco Inc., together with its subsidiaries, designs and manufactures emission control and ride control products worldwide. The company was founded in 1987 and has a market cap of $643 million.

Tenneco has been on an impressive rally for the last 4 months, recently helped by the company’s better than expected second-quarter results, reported on July 30.

Second-Quarter Results

In spite of a 33% drop in revenue, Tenneco produced earnings that were far ahead of expectations, coming in at a loss of 22 cents per share against the Zacks Consensus Estimate calling for a loss of 46 cents.

The company noted that its results were driven by cost cutting as opposed to revenue growth, but with Chrysler and General Motors recently emerging from bankruptcy, Tenneco expects sales to pick up again in the second half of the year.

Estimates

Estimates were already on the rise before the good quarter hit the Street, with the current year up 93 cents in the last 90 days to a loss of $1.57. The next-year estimate is up to a gain of 16 cents from a loss of 34 cents.

CEO Speak

Tenneco CEAO Gregg Sherrill commented on the company’s results and direction, saying that, “Our cost reduction, restructuring and cash generation actions continue to take hold and are delivering the results we need to manage through this very challenging production environment.”

The Chart

Shares of TEN are up huge over the last 4 months as the market has rallied, climbing from less than a $1 to a recent high above $14. Take a look at the nice run below.

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(TEN) Tenneco Incorporated – produced earnings that were far ahead of expectations

Company Description

Wonder Auto is a Chinese-based automotive parts manufacturer that produces electrical parts, suspension products and engine accessories for the Chinese and some overseas auto markets. It is one of the largest providers of alternators and starters with over 150 models of alternators and 70 models of starters.

Revenue Jumped 28.5% in the First Quarter

On May 4, Wonder Auto reported first quarter results and continued with its string of surprises as it beat Wall Street estimates by 26.67%. Earnings per share were 19 cents compared to analysts’ estimates of 15 cents.

The company is operating on all cylinders. Revenue rose to a record $40 million from $31.1 million a year ago. The big revenue gain was due to the acquisition of Jinan Worldwide, which contributed an extra $7.3 million in the quarter.

China is still its largest market as Chinese sales revenue jumped 41.9% year over year while the organic Chinese growth was 15.4%.

Wonder Auto is in an enviable position as China’s auto market continues to grow while the rest of the world’s market is declining. The Chinese stimulus program is also pumping money into the automobile sector which will benefit Wonder Auto going forward.

Analysts Are Bullish

Given the continued strength of the company’s earnings reports, covering analysts have been raising estimates on both the second quarter and the full year. Second quarter estimates are up a penny to 19 cents in the last 2 months.

For the full year, consensus estimates jumped nearly 8% to 82 cents from 76 cents per share in the last 60 days.

The Chart is Wild

Value stocks normally have pretty dependable charts, but Wonder Auto’s is a bit more volatile as you can see below.

But the fundamentals support the recent jump in the stock.

Wonder Auto is trading at just 10.3x forward earnings. It has a price-to-book ratio of 2.05. The company has an outstanding 5-year average return on equity (ROE) of 23.51%.

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(WATG) Wonder Auto Technologies Inc. – Value – Zacks Rank Buy