Superior Industries International, Inc. (SUP) supplies 35 per cent of the aluminum wheels used on passenger cars and light trucks in North America. The company operates in a highly competitive environment in terms of customer service, product quality and innovation.
The company announced its first quarter 2008 results. In the reported quarter, net income increased to $0.12 per diluted share, compared to $0.08 per diluted share in the first quarter of 2007. The increase in net income was partially contributed by the equity earnings of the company's joint venture in Hungary, which increased to $2.1 million in the first quarter of 2008 from $791,000 in the prior year quarter.
However, owing to pricing pressures from original equipment manufacturers (OEMs) and excess capacity, Superior Industries has been negatively affected. This has been partially offset by the company's focus on manufacturing efficiency and cost control. The new manufacturing facility in Mexico is expected to boost the company's margins.
Currently, shares of Superior Industries are trading at 1.05x our 2008 book value. Management's commitment towards diversification of its OEM customer base, improvement in operational efficiency, cost reduction by automating certain production lines, seeking lower-cost facilities abroad along with a reduction in competitors' market share raise our optimism over the stock performance.
However, weak pricing and volumes raise our concern. Thus, we maintain our Hold rating with a six-month share price of $20. This is 1x our 2008 book value estimate.
Read the full analyst report on SUP.
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