Tenneco To Gain From Diversification, Pricing Pressure A Woe

On Nov 20, we issued an updated research report on Tenneco Inc. (NYSE:TEN) .

On Oct 27, Tenneco reported adjusted earnings per share of $1.67 for third-quarter fiscal 2017 (ended Sep 30, 2017), beating the Zacks Consensus Estimate of $1.59. Quarterly revenues jumped 8.5% year over year to $2.27 billion. Also, the top line surpassed the Zacks Consensus Estimate of $2.23 billion.

For the fourth quarter of fiscal 2017, the company expects total revenues to gain about 3% year over year on a constant currency basis. Further, it hopes to witness double-digit growth in commercial truck and off-highway revenues. However, the light vehicle sales are estimated to be equivalent to the industry that the company belongs to.

Tenneco Inc. Price and Consensus

Tenneco Inc. Price and Consensus | Tenneco Inc. Quote

Total revenues for 2017 are expected to rise about 6% year over year on a constant currency basis.

In order to improve revenues, product lines and drive long-term cash generation, Tenneco is diversifying its portfolio to grow its geographical footprint, customers as well as platforms. Further, it is making investments in working capital to support overall growth.

In the third quarter, the company returned $85 million to its shareholders through buybacks and dividends. This shows Tenneco’s focus to enhance the shareholder value.

As of fiscal 2016, Tenneco’s top 10 customers accounted for 63% of its sales, thus making the company heavily dependent on a handful few customers in the OEM (Original Equipment Manufacturer) segment. This reliance on others also makes it vulnerable to price changing pressures from the OEMs.

Weakening demand in European and North American off-highway markets and currency fluctuation are Tenneco’s other concerns.

The stock has seen the Zacks Consensus Estimate for quarterly earnings per share being revised 1.2% downward to $1.63 over the last 30 days.

Price Performance

Last month, shares of the company have underperformed the industry it belongs to. The stock has lost 10% compared with the industry’s 0.3% decline.

Zacks Rank & Key Picks

Tenneco carries a Zacks Rank #3 (Hold). A few better-ranked companies in the auto space include Cummins Inc. (NYSE:CMI) , Toyota Motor Corporation (NYSE:TM) and Wabco Holdings Inc. (NYSE:WBC) , each sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Cummins has an expected long-term growth rate of 12.1%. Year to date, shares of the company have been up 16.9%.

Toyota has an expected long-term growth rate of 6.2%. The stock has seen the Zacks Consensus Estimate for quarterly earnings per share being revised 4.3% upward to $2.9 over the last 30 days.

Wabco has an expected long-term growth rate of 15%. Its shares have been up 21.9% in the last six months.

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