I’m going to start buying some Visteon C…
I’m going to start buying some Visteon Corp as my next purchase. Here’s why:
It’s a brand new long, in an entirely new sector to help diversify us away from technology a little bit. The auto sector, including all its vendors and suppliers, restructured both operationally and financially in recent years, and capacity and competition in the sector has diminished tremendously.
A slight bump in car output now has suppliers with record profit and record margins, yet supplier stocks trade only at four to five times EBITDA. I’ve got a name that’s even cheaper than that, though.
Continued domestic and global output expansion will continue to produce record profits and record margins, and will lead to multiple expansion — leaving room for huge upside in share prices for the suppliers in the auto industry. Analysts are only now realizing the profit potential of stocks after being extremely conservative up until this point.
Think about this: Domestic supply bottomed at 9 million units last year, bouncing to maybe 11 million units this year. Supply peaked at more than 17 million units in 2007 and averaged more than 15 million units for a dozen years prior. Domestic units will go back to 15 million over the next few years, assuming our economy doesn’t completely collapse again, and suppliers will benefit.
Of course, global numbers are similar, although China and India are just booming.
So that brings me to Visteon Corp. VC -2.44% Visteon owns 70% of Halla, which itself is publicly traded, and worth $1.4 billion. Visteon also owns various Chinese joint ventures, including Yanfeng Visteon, worth at least $1.B, but I’m not even going to give them any value at all in my valuation calculations below:
| VC enterprise value | $3.523 billion |
| Minus Halla | – $1.4 billion |
| Minus net cash per share | – $1 billion |
| Remaining value | $1.123 billion |
| Current EBITDA | $592 million |
That means we’re buying a business in a booming industry at less than two times cash flows. Many of its competitors trade at closer to 10 times. Looked at another way, this company will likely grow earnings from $3 to $5 per share next year. That’s without the analysts upping their industry estimates to today’s better demand realities. I’m adding this position to the portfolio as a long today.
