Tenneco Stays at Neutral - Analyst Blog

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On Jan 13, 2014, we maintained the Neutral recommendation on Tenneco Inc. ( TEN ). The company is expected to benefit from tighter emission regulations and focus on maximizing manufacturing efficiency. However, relatively weak demand in the high-margin aftermarket parts business and high customer concentration poses a threat.

Why the Reiteration?

Tenneco reported adjusted earnings per share of 99 cents in the third quarter of 2013, which surpassed the Zacks Consensus Estimate of 95 cents. Earnings per share surged 16.5% year over year from 85 cents in the third quarter of 2012.

There has been no estimate revision for Tenneco's 2013 earnings per share in the last 60 days. Thus, the Zacks Consensus Estimate stands at $3.65 per share, up 9.91% from 2012.

Tenneco expects revenues to grow significantly in the fourth quarter and full year.  The company expects original equipment (OE) revenues between $6.4 billion and $6.8 billion for 2013, including commercial vehicle revenues in a range of $0.9 billion and $1.1 billion.

For 2014, the company anticipates OE revenues between $7.2 billion and $7.7 billion, including commercial vehicle revenues in the range of $1.3 billion to $1.6 billion. The improvement in the year will be driven by better macroeconomic conditions globally, resulting in stronger light and commercial vehicle volumes.

The company expects to achieve a 5-year average compound annual OE revenue growth rate of 18% to 20% through 2014, driven by emissions regulations that are being implemented globally. Tenneco's diversified product offering has helped win significant businesses.

However, pricing pressure from original equipment manufacturers (OEMs) remains a problem for Tenneco. Additionally, the company largely depends on a few customers in the OEM segment. The company also faces weak demand for aftermarket parts compared to original equipments.

Thus, considering the pros and cons, we have maintained our Neutral recommendation.

Other Stocks to Consider

Tenneco currently carries a Zacks Rank #2 (Buy). Other stocks worth considering with the same Zacks Rank include American Axle & Manufacturing Holdings Inc. ( AXL ), Federal-Mogul Corporation ( FDML ) and Magna International Inc. ( MGA ).



AMER AXLE & MFG (AXL): Free Stock Analysis Report

FEDERAL MOGUL-A (FDML): Free Stock Analysis Report

MAGNA INTL CL A (MGA): Free Stock Analysis Report

TENNECO INC (TEN): Free Stock Analysis Report

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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 The NASDAQ OMX Group, Inc.



This article appears in: Investing , Business , Stocks

Referenced Stocks: AXL , FDML , MGA , TEN

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