The market is by no means a perfect discounting mechanism, but when you stumble across on oddly-undervalued stock it’s at least worth checking your basic assumptions. Such is the case with Meritor (MTOR). I can understand why investors may have some apprehensions about an approaching peak in commercial vehicle production, but that seems more than discounted in the share price today.
Meritor management has built credibility with successful execution on multiple margin-improvement and growth initiatives (the “M series” of M2016, M2019, and M2022), and the company has also assembled a credible platform for participating in future truck electrification. Low single-digit long-term revenue growth and ongoing improvement in FCF margins within the 3% to 5% band I talked about years ago can drive a fair value around $30 today, and the shares likewise look undervalued on a margin-driven multiples basis.
Read the full article here:
Meritor Already Discounting A Significant Correction In Commercial Vehicles
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