Thursday, December 3, 2015

Seeking Alpha: Commercial Vehicle Changing Gears At An Inopportune Time

As a turnaround story, Commercial Vehicle Group (NASDAQ:CVGI) has been a lousy call. The company has not had all that much success growing share within the seating market for commercial trucks, and management has tried to build up it agriculture and construction businesses during major downturns in those two markets. While the company has made what I consider to be underrated progress in improving its margins, balance sheet, and free cash flow, the fact remains that the shares are down almost 50% over the past year and about 60% over the past three years - significantly underperforming other commercial vehicle parts/components manufacturers like Cummins (NYSE:CMI), Allison (NYSE:ALSN), and Grammer AG.

Now things are about to get even more challenging. The North American commercial truck market is likely at or near its near-term peak, and that doesn't bode well for volumes, or margins, in the company's largest and most profitable business. The ag and construction markets are still soft and not really in a position to contribute offsetting growth. Last and by no means least, the company recently announced the departure of its CEO after less than three years in the job.

While the shares arguably do still trade below fair value, it's hard to argue that investors need to risk their hard-earned money on this turnaround story. The company could well be looking at two or three years of revenue contraction and margin deleverage, and that is often enough to scare off most investors. Patience could still pay here, but the ride is likely to get a lot bumpier before smoothing out.

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Commercial Vehicle Changing Gears At An Inopportune Time

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