Aptiv PLC’s APTV smart architecture provides a competitive advantage and boosts market share. Acquisitions strengthen APTV’s position as a global leader in vehicle architecture systems. Meanwhile, the just-in-time strategy might hurt the company’s logistic supply chain.

The Zacks Consensus Estimate for APTV’s 2024 earnings is pegged at $6.2 per share, suggesting 26.5% growth from the year-ago reported level. For 2025, the bottom line is pegged at $7 per share, hinting at a 13.9% year-over-year increase. The company has an expected long-term (three to five years) EPS growth rate of 16.1%.

Factors That Auger Well for APTV’s Success

Aptiv operates in the lucrative connected cars market, and the demand for its products and services increases with security becoming a key selling point for connected cars. The reason behind the demand hike is the quick advancement of the driver-assistance system market.

There is a surge in demand for bespoke infotainment connectivity and convenience, adding features that require more wiring inside vehicles. We believe that with excellent system integration expertise, Aptiv is well-positioned to cater to the growing electrification, connectivity and autonomy trends.

The company’s "smart architecture" provides a competitive edge and boosts market share. Decreasing environmental impacts and increasing fuel economy are the key industry trends, and Original Equipment Manufacturers have increased their search for better engine management and lower power consumption. APTV benefits from this trend as “smart architecture” reduces wiring requirements, making cars fuel-efficient while adding multiple features.

Buyouts and strategic investments boost Aptiv’s growth. In 2023, the company acquired Höhle Ltd., which has strengthened APTV's Signal and Power Solutions segment.

In 2022, Aptiv acquired Wind River and Intercable Automotive Solutions. Wind River expands APTV's position in the automotive software solutions market and Intercable Automotive Solutions strengthens its position as a global leader in vehicle architecture systems.

Aptiv intends to invest to achieve organic and inorganic growth. Since it acquires a large number of companies on an ongoing basis, the integration of these companies generates cost synergies, which improves the combined company’s efficiency.

APTV’s current ratio (a measure of liquidity) was at 1.5 at the end of the third quarter of 2024, lower than the industry’s 2.16. However, the metric has improved marginally from the preceding quarter due to a rise in accounts receivable and inventory. Furthermore, a current ratio exceeding 1 portrays strength in the company’s ability to cover short-term debt.

Image Source: Zacks Investment Research

Risks Faced by Aptiv

As APTV continues to invest in organic and inorganic growth, and remains embroiled in legal matters, cost increases have been pressuring the bottom line. Although some acquisitions would have an immediate positive impact on the bottom line, most investments take a few years to boost revenues and profitability. Further, in a weak demand environment, it could take even longer.

The company, other component manufacturers and suppliers in the automotive industry deliver products to customers’ vehicle assembly plants on a “just-in-time” basis to achieve low inventory. However, this “just-in-time” strategy makes the logistics supply chain complex and vulnerable to disruptions.

APTV’s Zacks Rank & Stocks to Consider

Aptiv has a Zacks Rank #3 (Hold) at present.

Some better-ranked stocks from the broader Zacks Business Services sector are Fiserv, Inc. FI and Genpact G, each carrying a Zacks Rank of 2 (Buy) at present. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Fiserv has a long-term earnings growth expectation of 14.9%. FI delivered a trailing four-quarter earnings surprise of 3.1%, on average.

Genpact has a long-term earnings growth expectation of 9.8%. G delivered a trailing four-quarter earnings surprise of 7.8%, on average.

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report

Genpact Limited (G) : Free Stock Analysis Report

Fiserv, Inc. (FI) : Free Stock Analysis Report

Aptiv PLC (APTV) : Free Stock Analysis Report

To read this article on Zacks.com click here.

Zacks Investment Research