TRW Automotive Group - Aggressive Growth

TRW Automotive (TRW) estimates are surging, surpassing pre-recession levels after the latest earnings surprise.

Company Description

TRW Automotive is an auto supplier offering braking, steering, suspension, safety and driver assisting systems and other products.

Big Surprise

On Aug 4 TRW Automotive reported quarterly results that showed a 34% jump in sales, to $3.7 billion. Net earnings came in at $221 million, or $1.73 per share. The company improved drastically from the $8 million, 8 cents per share, earned a year ago. Analysts were expecting just $1.09 per share, extending the earnings surprise streak to 14 consecutive quarters.

TRW's CEO attributes the solid quarterly results to both internal and external factors. The company is gaining new business but the industry is also seeing a solid recovery as well.

Estimates Jump

Analysts beefed up their forecasts following the news. Estimates for this year are up $1.03 to $4.88, which is almost 3 times higher than the $1.26 earned in 2009.

The Zacks Consensus Estimate for 2011 is up 94 cents, to $5.28, for an 8% growth rate.

Comparison & Valuation

Shares of TRW are still trading at a bargain, at just 7 times forward estimates and with a PEG ratio of 1.0.

Currently, TRW is the top rated company in its industry, which is ranked 27th out of 264 at Zacks.com. Looking at the comparisons, it is easy to see why.

The company's net profit margin of 4.6% is more than double the industry average of 2.0%. TRW is boasting an 44% return on equity which comes in roughly 4 times ahead of the industry norm.

Secondary Offering

Last week there was a 7.5 million share secondary offering, which looks like it pushed the stock down a few percent. Shares were held by and affiliate of Blackstone meaning the overall number of shares will not be materially impacted.

The earnings per share outlook shouldn't be impacted, so don't let the headlines or slight dip keep you away.

The Chart

Below is a chart of the full-year consensus estimate trend over the past 5 years. You can see that the outlook is rebounding sharply after hitting bottom near the peak of the financial crisis and recession. Estimates are higher now than they were before the economic trouble and continue to head higher.

Bill Wilton is the Growth Stock Strategist for Zacks.com. He is also the Editor in charge of the market-beating Zacks Growth Trader service
 
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