New Sustainable Products Like Foldable Steering Wheels And Low-Carbon Airbags Will Strengthen Competitive Position

Key Takeaways

• Structural cost reduction and automation are expected to improve margins and productivity, enhancing net and operating earnings.
  
• Innovative products and growth in China are likely to boost sales and align with sustainability, enhancing revenue and market share.
  
• Autoliv faces revenue and margin challenges from declining vehicle production, currency effects, cost pressures, and potential tariff impacts in key markets.

Catalysts

Through its subsidiaries, develops, manufactures, and supplies passive safety systems to the automotive industry in Europe, the Americas, China, Japan, and rest of Asia.

• Autoliv is anticipating margin improvement in 2025 due to structural cost reduction, including a reduced indirect workforce and streamlined operations, which should positively impact net margins and earnings.
  
• The company expects to outperform in China with numerous new product launches with Chinese OEMs, improving sales performance and revenue growth relative to light vehicle production.
  
• Autoliv is focused on automation and digitalization, which has improved direct labor productivity and contributed to gross margin increases, benefiting operating margins and efficiencies.
  
• There is an expectation of continued high levels of shareholder returns supported by robust cash flow and a strong balance sheet, likely influencing earnings per share (EPS) positively.
  
• The introduction of innovative products, such as foldable steering wheels and low-carbon airbag materials, aligns with sustainability trends and enhances Autoliv's competitive position, contributing to potential future revenue and market share growth.

Autoliv Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Autoliv's revenue will grow by 3.0% annually over the next 3 years.
• Analysts assume that profit margins will increase from 6.2% today to 7.9% in 3 years time.
• Analysts expect earnings to reach $891.4 million (and earnings per share of $12.53) by about March 2028, up from $646.0 million today. However, there is some disagreement amongst the analysts with the more bullish ones expecting earnings as high as $1.0 billion.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 10.4x on those 2028 earnings, down from 10.7x today. This future PE is lower than the current PE for the US Auto Components industry at 15.7x.
• Analysts expect the number of shares outstanding to decline by 4.53% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.74%, as per the Simply Wall St company report.

Autoliv Future Earnings Per Share Growth

Risks

• Autoliv experienced a 5% decline in Q4 sales year-over-year due to negative effects from currency translations, lower light vehicle production, and regional and customer mix development, potentially impacting future revenue.
  
• The company's guidance is based on a forecasted global light vehicle production decline of 0.5% in 2025, with anticipated regional-specific influences and slower EV adaptation growth, which could negatively affect revenue growth.
  
• Continued cost pressures from inflation, particularly in Europe and the Americas, and uncertainties about commercial recoveries from customers pose risks to net margins.
  
• Market challenges such as fluctuating demand and lower LVP in key regions like North America and Europe, particularly due to inventory adjustments, may impact revenue and earnings.
  
• The potential impact of tariffs, particularly concerning goods from Mexico to the U.S., remains a risk that could affect operational costs and profit margins if not successfully passed on to customers.

Valuation

• The analysts have a consensus price target of $110.784 for Autoliv based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $140.0, and the most bearish reporting a price target of just $95.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $11.4 billion, earnings will come to $891.4 million, and it would be trading on a PE ratio of 10.4x, assuming you use a discount rate of 7.7%.
• Given the current share price of $88.62, the analyst price target of $110.78 is 20.0% higher.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.