Tenneco Still Unsteadily Walking A Tightrope

Back in June I wrote that Tenneco (TEN) was one of the more complicated stories in the vehicle parts group that I follow, as the company’s very high leverage meant that even objectively small changes in modeling assumptions could have outsized impacts on the implied fair value. I also said that I didn’t really like the fundamental story, as the company’s opportunity to grow content in hybrid light vehicles and commercial vehicles was offset by mixed margin leverage, a questionable management team, and ample uncertainty on the DRiV spin-off.

Not a lot has changed. Although Tenneco has done a little better since that piece relative to names I like better like BorgWarner (BWA) and Dana (DAN) (Valeo (OTCPK:VLEEY) has outperformed), I don’t feel like I’ve missed much on a risk-adjusted basis. Although there’s definitely outsized upside here if Tenneco management can get margins moving in the right direction (and/or figure out some attractive asset sales), that outsized upside comes with outsized risk, as the company will need almost 15 years to earn out its debt if margins don’t improve more than I expect.

Click here for more:
Tenneco Still Unsteadily Walking A Tightrope