Commercial Vehicle Group (NASDAQ:CVGI) continues to see fierce headwinds across its business from the weak end-market demand for North American heavy trucks, construction and ag equipment, but management's efforts to improve the cost structure and cash flow are paying off. The market has noticed, with the shares more than doubling since my last update and trouncing the performance of other commercial vehicle suppliers like Cummins (NYSE:CMI), Allison (NYSE:ALSN), and Grammer (OTC:GMEGF).
Looking ahead, I'm cautiously optimistic that there is more upside potential. Management has meaningfully improved the cost structure and margins of the Construction/Ag business despite ongoing revenue contraction and the Truck business should start to improve later in 2017 as the commercial truck market stabilizes. If Commercial Vehicle can grow revenue at an annualized rate of around 2.5% from the trough of 2017 and generate FCF margins in the 3% to 4% in the better years ahead, a fair value above $7 is still plausible.
Commercial Vehicle Paddling Through The Rapids