Cooper-Standard Holdings - A Growing Company At A Reasonable Price

| About: Cooper-Standard Holdings (CPS)


Industrial company selling into the global automotive industry.

Solid cash flow generator.

The stock appears undervalued.

Cooper-Standard Holdings (NYSE:CPS) appears undervalued compared to its free cash flow generation. The company has repurchased stock recently. In 2013, the company repurchased a significant amount of stock at prices considerably below today's stock price.

The company provides components for use in passenger vehicles and light trucks, including "sealing, fuel and brake delivery, fluid transfer and anti-vibration systems."

The sealing systems business accounted for 53% of the company's revenues in 2015. According to the company, Cooper-Standard Holdings is the leading global sealing systems company

The fuel and brake delivery systems business contributed 20% of revenues. The company believes that it has a #2 position in the fuel and brake delivery systems that it produces.

The fluid transfer business is 14% of revenues. The company believes that it is the #3 competitor in this business.

The anti-vibration systems business contributed 8% of revenues in 2015. The company believes it is one of the larger North American producers of anti-vibration systems.

The company was founded by acquiring the automotive segment of Cooper Tire & Rubber Company in 2004. Since then, the company has grown organically and through acquisitions.

Cooper-Standard's top customer is Ford (NYSE:F) (26% of 2015 sales). Its second most important customer is General Motors (NYSE:GM) (16%).

Going forward, the company has a few different options for growth. It could continue to acquire companies. Intriguingly, the company's U.S. operations have a double-digit profit margin. In contrast, the international segment (48% of sales) has been losing money. It does not appear as if the difference in profitability is a function of management shifting profits to lower tax jurisdictions, because very little of the company's revenues are transfers between regions.

Cooper-Standard is earning at a run rate of about $2.00 per share per quarter, implying a P/E of about 11.5x. The company has been buying back stock this year. Before this year, the last time the company bought back a significant amount of stock was in 2013 (when the stock was at a much lower price than now).

The company's business performance should have above average sensitivity to economic growth. If the U.S. economy were to enter a recession, we would expect Cooper-Standard's results to suffer. Under those conditions, it is difficult to imagine that the stock will perform well. However, in the near term we don't think a recession is likely.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: This article is information purposes only. It is not investment advice nor an offer of investment advice. Please do your own due diligence, as you bear the entire risk of your investment.