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Why Barclays Upgraded Tenneco’s Rating to ‘Overweight’

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Aug. 18 2020, Updated 6:30 a.m. ET

Price movement of Tenneco

Tenneco (TEN) has a market cap of $2.4 billion. TEN rose by 0.44% to close at $41.53 per share as of February 11, 2016. The price movements on weekly, monthly, and year-to-date (or YTD) bases are 11.6%, 0.36%, and -9.5%, respectively.

At times, the stock has broken the support of all moving day averages. Currently, TEN is trading 10.1% above its 20-day moving average, 4.5% below its 50-day moving average, and 17.9% below its 200-day moving average.

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The iShares Morningstar Small-Cap Value ETF (JKL) invests 0.58% of its holdings in Tenneco. The ETF tracks a market-cap-weighted index of US small-cap value stocks. The index stocks from the 90th to the 97th percentile of the market-cap spectrum using fundamental factors. The YTD price movement of JKL is -11.9% as of February 10, 2016.

The iShares Russell 2000 Growth ETF (IWO) invests 0.36% of its holdings in Tenneco. The ETF tracks a market-cap-weighted index of US small-cap growth stocks. The index selects from stocks ranked 1001–3000 by market cap based on two growth factors.

The market cap of Tenneco’s competitors are as follows:

  • Cummins (CMI) — $16.9 billion
  • BorgWarner (BWA) — $6.8 billion
  • Lear (LEA) — $7.4 billion

Barclays upgraded Tenneco’s rating

Barclays has upgraded Tenneco’s rating from “equal-weight” to “overweight” and set the price target of $55 per share.

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Performance of Tenneco in fiscal 4Q15 and fiscal 2015

Tenneco reported fiscal 4Q15 net sales and operating revenues of $2,031.0 million, a rise of 1.3% compared to net sales and operating revenues of $2,004.0 million in fiscal 4Q14. The company’s cost of sales as a percentage of net sales and operating revenues fell by 1.2% in fiscal 4Q15 compared to fiscal 4Q14.

Its net income and EPS (earnings per share) rose to $68.0 million and $1.17, respectively, in fiscal 4Q15, compared to $21.0 million and $0.33, respectively, in fiscal 4Q14.

Fiscal 2015 results

In fiscal 2015, TEN reported net sales and operating revenues of $8,209.0 million, a fall of 2.5% YoY (year-over-year). Its net income and EPS rose to $247.0 million and $4.11, respectively, in 2015, compared to $226.0 million and $3.66, respectively, in fiscal 2014.

Its cash and cash equivalents rose by 1.8%, and inventories fell by 0.87% in fiscal 2015. Its long-term debt-to-equity ratio rose to 2.6 in fiscal 2015 compared to 2.1 in fiscal 2014.

The company repurchased a total of 4.2 million shares for $213 million. At the end of 2015, it authorized to repurchase an additional $337 million in shares, which will be completed by the end of 2017.

The PE (price-to-earnings) and PBV (price-to-book value) ratios of Tenneco are 12.7x and 5.5x, respectively, as of February 11, 2016.

Guidance for fiscal 2016

The company expects fiscal 2016 revenue growth of 5% at current industry growth forecasts and excluding the impact of currency.

This revenue growth will be driven by the following:

  • incremental clean air revenue from 2015 light vehicle launches and new launches in 2016
  • incremental revenue from Monroe Intelligent Suspension programs with four new launches in 2016 and the continued ramp-up on programs launched in 2015
  • commercial truck and off-highway emissions regulations with additional content on off-highway Tier 4f and Stage 4 programs in North America and Europe, incremental revenue from 2015 launches of a North America medium-duty commercial truck and an off-highway program in Japan, increasing market share with commercial truck customers in China, and initial launches with commercial truck customers in India to comply with BS IV regulations

The company made the following projections for fiscal 2016:

  • capital expenditures in the range of $300 million to $330 million
  • annual interest expense of $75 million
  • cash taxes in the range of $140 million to $160 million
  • tax rate in the range of 31% to 32%

For fiscal 2017 and fiscal 2018, the company expects revenue growth of 6%–8% and 7%–9%, respectively. It expects to outpace industry production by 3%–5% each year as new light vehicle emissions regulations begin in North America and Europe.

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