Tenneco Looking Almost Too Good Lately

A healthy skepticism, bordering on paranoia, is a good asset for investors to have. I liked Tenneco (NYSE:TEN) earlier this year on the prospects for content gains to drive growth above industry build rates and for investors to come around to the realization that growing light vehicle electrification isn't going to mean the end of internal combustion engines (at least not in 10 to 20 years). That said, I was surprised to see the shares climb more than 25% from that last article, as many auto/truck component companies have enjoyed a strong rally since the summer.

My skeptic spidey-sense is still tingling a little, though, because the shares still look undervalued. Strong demand for Tenneco-containing vehicles like the Ford (NYSE:F) Super Duty and F150 and General Motors' (NYSE:GM) Silverado, Sierra, and Escalade, and surprising resilience with Volkswagen's (OTCPK:VLKAY) Jetta platform are all positives, as is the margin leverage. Still, with my models now pointing to a fair value closer to $60, I'm a little concerned that I'm overlooking something. On the other hand, for those in the "don't worry, be happy" camp, business continues to develop nicely here, as the company logs beat-and-raise quarters, benefits from numerous model launches, and still looks like it has more to offer in terms of upside.

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Tenneco Looking Almost Too Good Lately