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Commercial Vehicle Still Early In A Major Business Repositioning

Stephen Simpson profile picture
Stephen Simpson


  • Commercial Vehicle reports fourth quarter earnings on March 10; better results in the commercial truck space and strong growth in warehouse automation suggest upside.
  • Commercial truck production rates should be much higher in 2021, and CVG should see very strong demand in the warehouse business, while electric trucks will be more about order wins.
  • Supplying "picks and shovels" for warehouse automation and shifting toward value-added components for emerging markets like electric trucks should drive higher sustainable margins, but execution is vital.
  • Mid-single-digit long-term revenue growth and FCF margins in the mid-single-digits can support a mid-teens fair value, and electric trucks and warehouse automation should offer revenue growth upside.

So far, so good for Commercial Vehicle Group’s (NASDAQ:CVGI) (or “CVG”) attempt to significantly restructure the business away from its low-return, commoditized truck components legacy and toward new opportunities in higher-value electrification projects, including BEV trucks and warehouse automation. The third quarter saw 65% of the company’s revenue come from non-truck sources, and while that number will likely jump around on the cyclicality of the truck business, early execution on this new strategy has been good.

CVG shares have doubled since my last update, and they could still have plenty of room to run. Initial progress with electrical commercial vehicle projects has been positive, and warehouse automation remains a red-hot market. So much of the modeling here is speculative as the company targets fast-growing, relatively new markets where they don’t have much experience, but as an emerging “picks and shovels” supplier to both electrical commercial vehicles and warehouse automation, there’s definite appeal. Keep in mind, though, that this is a small fish swimming in murky, turbulent waters and these shares do carry well above-average risk.

Waiting For Fourth Quarter Results

CVG is a late reporter in the cycle, so we won’t see fourth quarter earnings until next week, but given the trends and themes in the commercial vehicle and warehouse automation spaces, there’s no reason not to expect a pretty good quarter relative to expectations.

Commercial vehicle suppliers like Cummins (CMI) and Dana (DAN) reported better than expected revenue in the fourth quarter, and while PACCAR (PCAR) had a noisy quarter, it did meaningfully raise its guidance for North American Class 8 truck deliveries in 2021 (up 15% at the midpoint, or up 22% year-over-year).

Suppliers of automation solutions to the warehouse end-market likewise reported strong results, with Honeywell (HON) reporting 37% year-over-year growth and a 70% year-over-year improvement

This article was written by

Stephen Simpson profile picture
Stephen Simpson is a freelance financial writer and investor. Spent close to 15 years on the Street (sell-side, buy-side, equities, bonds); now a semi-retired raccoon rancher. That last part isn't entirely true. Probably.

Analyst’s 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 (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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Comments (3)

Maxwello profile picture
This garbage is going down down down
Neal_Joseph profile picture
Mr Simpson, This article provided great insight on CVGI. It was spot on with a remarkable return. I would appreciate your current thoughts on the company and their prospects. I believe Wall Street has not yet recognized the value of the growing warehouse business, the lower cost of servicing the debt and the progress made in the EV market. Thanks very much in advance for your current perspective.
Slater23 profile picture
Having listened to management on their last two quarterly conference calls and conference presentations; as well as having spoken to them directly it is clear to me that they are committed to reducing and controlling their cost structure.
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