There's a marked contrast between the passenger and
commercial vehicle sectors now, with ample worries that the former is
peaking and growing hopes that the later is bottoming out. As a
commercial components player, the prospect of improving market
conditions is bullish for Meritor (NYSE:MTOR), although 2017 is likely to still be a challenging year.
What's
more interesting about Meritor is the bold targets that management has
laid out for growth over the next few years, including 20%
outperformance relative to the underlying markets. Although I don't
believe Meritor will get there without M&A (which I don't model), it
has been building a much better track record for itself in recent
years, and I don't dismiss the possibility that the company will do
better than expected. That said, today's price already seems to assume
meaningful improvement at the company, and it may make more sense on a
risk/reward basis to wait in the hopes of temporary disruptions or
disappointments creating a more opportune entry price.
Meritor Pursuing Bold Goals As Markets Bottom Out
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