Autoliv earnings beat and spinoff plans buck yesterday’s market plunge

While the Standard & Poor’s 500 stock index was falling 1.04% yesterday and the Dow Jones Industrial Average was giving up 362 point, auto safety supplier Autoliv (ALV) was busy climbing 8.07% on the day to close at $149.48. (The stock, a member of my Jubak Picks Portfolio, is up 22.05% since I added it to the portfolio on April 29, 2016 to close at $149.48. As of yesterday, January 30, I’m raising my target price to $170 from the prior $134.)

The reasons for the gains today start with an earnings beat. For the fourth quarter of 2017 Autoliv reported earnings of $2.03 a share, exceeding Wall Street estimates by 30 cents a share. Revenue climbed 5% year over year to $2.73 billion, $40 million above projections. Organic revenue climbed by 1.1% in the quarter.

The reasons then extend to the results for the full year where the company reported record gross profit, record revenue, and record new orders. For the full year ahead Autoliv expects organic revenue growth of better than 7%.

And they finish off with the company announcing that its split into two companies (with shares to be distributed to shareholders of record at the split date,) one focused on passive safety products (seat belts, for example) and the other on safety electronics (electronic driver assist braking systems and lane safety sensors, for example) was on schedule for the third quarter of 2018. The passive safety company company, which will retain the Autoliv name, is projected to show revenue growth of better than 10% in 2018. Given the “enthusiasm” surrounding active electronic safety systems currently, I’d expect the new electronics company, to be named Veoneer, to be awarded a premium price-to-earnings multiple by the financial markets.