Aptiv (APTV) Stock Falls 22% Year to Date: Buy, Hold or Sell?

    Aptiv (APTV) Stock Falls 22% Year to Date: Buy, Hold or Sell?

    Aptiv PLC APTV has seen its stock decline 22% year to date, a significant drop compared to the 19% rally of the industry it belongs to and a 17% rise in the Zacks S&P 500 composite.

    This decline aligns with the performance of its closest competitors, Magna International MGA, which has fallen by 28%, and Visteon Corporation VC, which has dropped 14% over the same period.

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    Aptiv’s downward trajectory is primarily due to several challenges facing the global automotive industry. These include a slowdown in electrification momentum, growing labor and material costs, geopolitical tensions and economic volatility. These factors have collectively contributed to investor concerns and the stock’s poor performance.

    The stock closed at $69.79 in its last trading session, close to its 52-week low of $65.13. Additionally, Aptiv is trading below its 50-day moving average, indicating a bearish sentiment among investors.

    APTV Stock Trades Below 50-Day Average

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

    A Lowered Outlook Signals Trouble

    Aptiv has lowered its 2024 revenue guidance by $450 million, reflecting ongoing weaknesses in electric vehicle (EV) production, significant customer schedule reductions, and negative impacts from foreign exchange rates.

    The company’s first quarter 2024 revenues improved just 2% year over year on an adjusted basis, hampered by slowing EV production in North America and Europe, increased labor inflation, and currency fluctuations.

    The company’s Signal and Power Solutions segment is experiencing challenges, with revenue improving just 1% year-over-year in the first quarter of 2024, impacted mainly by increased labor inflation.

    Strategic Response and Long-term Prospects

    Despite these macroeconomic headwinds, Aptiv remains optimistic about its long-term prospects. The company anticipates that cost-saving measures and performance actions will continue to provide benefits, partially offsetting the negative impacts of lower volumes and foreign exchange rates. The company’s adjusted operating income increased 24.5% year over year in the first quarter of 2024, representing an adjusted operating income margin of 11.1% that was up 200 basis points year over year. These gains were driven by productivity initiatives and cost actions that helped mitigate the effects of lower vehicle production and increased labor inflation.

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

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

    Aptiv’s current ratio (a measure of liquidity) was at 1.29 at the end of the first quarter of 2024 compared with the industry’s 0.97. A current ratio of more than 1 indicates that the company should be easily paying off its short-term obligations.

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    Hold Off for a More Favorable Entry Point

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

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

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

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

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    The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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