CVG Making Sound Choices To Drive Improved Future Results

 

The last six or so months have not been easy ones for commercial vehicle suppliers, nor riskier small-caps in general. In that context, a context wherein Cummins (CMI) shares have dropped about 17%, Lear (LEA) about 20% (before the Cummins bid) and Dana (DAN) around 30%, CVG’s (CVGI) 25% drop since my last update isn’t exactly out of line, particularly considering the magnitude of the changes going on at the company and the execution risk they carry.

I continue to like what CVG management is doing – tying the company’s future growth to “behind the scenes” involvement in electrification and automation, while running the legacy commercial vehicle business with a diligent focus on profitability. This is still a small, under-followed stock, and there’s still ample execution risk in the company’s transformation plan, but I believe these shares can trade back into the mid-teens as investors see the progress in management’s plan.

 

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CVG Making Sound Choices To Drive Improved Future Results

Commercial Vehicle Group, Inc. Executing Well On Its Transformation Plan

 

Management at Commercial Vehicle Group, Inc. (NASDAQ:CVGI) has taken on multiple challenges at once, transitioning CVG away from its historical reliance on seating and wiring for Class 8 trucks toward a much more diversified collection of markets, leveraging its opportunities in electrical vehicles and warehouse automation, and shifting the business mix within legacy businesses toward higher-margin, higher-return opportunities.

So far, I would say it’s going relatively well. Although CVG shares have lagged the S&P 500 since my last update, they’ve outperformed other commercial vehicle-leveraged supplies like Allison (NYSE:ALSN), Cummins (NYSE:CMI), and Dana (NYSE:DAN) by around 10% to 15%, though they haven’t kept pace with names with more leverage to warehouse automation like KION (OTCPK:KIGRY).

With an increased focus on warehouse automation, electric commercial vehicles, and more profitable commercial vehicle opportunities, I’m expecting long-term revenue growth solidly in the mid-single-digits, with a significant improvement in FCF margins into the mid-single-digits. If CVG can achieve this, the shares are still priced for a long-term annualized double-digit return and are still worth a serious look today, though this is a higher-risk story suitable only for more adventurous investors.

 

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Commercial Vehicle Group, Inc. Executing Well On Its Transformation Plan