Analyst Note | Oct 26, 2020
Narrow-moat Autoliv, supplier of air bags, seat belts, and steering wheels to the global auto industry, reported earnings per share before special items (EPS) of $1.48, $0.32 better than the CapIQ sell-side consensus EPS estimate of $1.16 and $0.18 ahead of the $1.30 EPS reported last year. Revenue was slightly better than the year-ago period, up 0.5% to $2.04 billion. Excluding slightly positive currency effect, organic revenue was up 0.4%, outperforming a 4.9% decline in global light vehicle production by 5.3 percentage points with all major regions contributing to the outperformance. Owing to management’s improved outlook for the full year as well as the time value of money since our last update, we expect to raise our fair value estimate by $5 to $85. Autoliv shares trade at a 1% premium to our expected fair value.
Management's 2020 guidance, which was withheld before third-quarter results, includes a 14.5% decline in revenue with an adjusted operating margin of around 6.0%. We had already been anticipating margins within management’s guidance range, but revenue guidance is about 4 percentage points better than our model forecast. Medium term, management believes Autoliv can surpass the growth in the total addressable market, or TAM, by 3-4 percentage points, because of the firm's new business backlog. As a result, we do not anticipate changing revenue assumptions in the latter portion of our five-year forecast that results in 6% Stage I average annual revenue growth.