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Delphi Technologies: COVID-19 Is Causing Significant Headwinds

May 04, 2020 1:41 PM ETDelphi Technologies PLC (DLPH) StockBWA
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Ploutos Investing


  • Delphi Technologies is a global leading supplier of auto components.
  • The outbreak of COVID-19 may significantly reduce the demand for its products in 2020 and 2021.
  • However, Delphi should continue to benefit from the trend towards lower vehicle emissions in the long term.
  • The company is currently trading at an attractive valuation but visibility is limited.

Investment Thesis

Delphi Technologies (NYSE:DLPH) finished its 2019 with a declining top and bottom line. The recent outbreak of COVID-19 is expected to significantly lower the demand for its products in 2020 and 2021. Its merger with BorgWarner (BWA) may need to be renegotiated due to the sharp drop in its market valuation lately. Despite near-term challenges, we think Delphi will continue to benefit from the trend towards lower vehicle emissions. In addition, its power electronics product should continue to do well thanks to increasing electronic content in vehicles. Delphi is currently trading at a significant discount to its peers. However, given the uncertainty caused by COVID-19, investors may want to wait on the sidelines until better visibility is seen.

Data by YCharts

Recent Developments: Q4 2019 Highlights

Delphi finished its 2019 with declining net sales and net income. As can be seen from the chart below, its net sales declined from $4.86 billion in 2018 to $4.36 billion in 2019. This represented a drop of about 10% in revenue primarily due to weak global auto demand. Its net income also declined sharply to only $0.19 per share in 2019. Excluding special items, its net income per share would have been $2.43 per share. This is still much lower than 2018’s $4.03 per share.

Source: 2019 Annual Report

Earnings And Growth Analysis

COVID-19 is creating significant headwinds

The outbreak of COVID-19 has caused a major disruption to the auto sector as demand has been repressed. In fact, IHS Markit forecasts that auto sales will decline by about 22% in 2020 from 2019. This is much more severe than the 2008-2009 recession. As stated by Colin Couchman, executive director of global autos demand forecasting at IHS Markit:

The pandemic remains a clear and present danger to the autos sector, with months of

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I am a value focused investor. Stocks rise and fall for many different reasons that we often cannot predict. Eventually, it is those companies with a wide moat and the ability to generate cash flow that prevail. Therefore, my investment focus is to find value stocks that are able to generate cash flow, with sustainable dividends and provide growth over time. I focus my attention on analyzing large-capped dividend growth stocks, REITs and ETFs. I aim at providing a quarterly update and insights on stocks I follow. Please feel free to browse the articles that I wrote and provide any comments.

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