Cooper-Standard, a leader and global suppliers of sealing systems and component, fuel and brake delivery, and fluid transfer systems was a pre-pandemic money tree cranking out over $8 EPS. During the pandemic, when global light vehicle production was cast into the depths of hell, multiple competitors within the space were forced to close shop; although $CPS remained afloat it did not come out unscathed. Instead, the stock plummeted into freefall, and was down over 90% from it's all-time high. But like my grandma says, when there is blood in the streets, buy real estate. And gentlemen, I have opened $CPS as my largest position and it's my 2024 best-performer pick. Let me explain why.
During the pandemic, global light vehicle production volumes fell to a low of 77.6 million units in 2020. Mr. Fu Bingfeng, President of OICA, described the sharp downtrend as "the worst crisis ever to impact the automotive industry." Due to being inherently dependent on light vehicle production, Cooper Standard's top line was obliterated. They went from an untouchable EPS and EBITDA monster to complete stagnation.
With production annihilated, it is no surprise that eight auto parts suppliers filed for bankruptcy between 2020 and 2021. While Cooper-Standard survived the chaos, revenues declined by over 35%, and shareholders experienced a 90% drop in share price. During the post-pandemic recovery, another major headwind emerged. The UAW strike once again halted light vehicle production for three of Cooper Standard's largest customers. Today, these obstacles have been successfully navigated, and the ascent to reclaim the throne has never been more clear.
Light vehicle production is now on a tear for a multitude of reasons. First, the average age of a vehicle on the road is currently sitting at an all time high of 13.6 years. That coupled with the fact that current domestic auto-inventory sits at 1.4 months (meaning the current stock of automobiles could only supply 1.4 months of sales) creates a huge impetus to start cranking out vehicles. And vehicle production = $CPS profits. Better yet, the vehicle production numbers from Q1 2024 are significantly exceeding consensus predictions. In every month in 2024 to date, vehicle sales have been significantly higher than in 2023. In March alone, vehicle sales were more than 100,000 units greater in 2024 than in 2023.
This boom in vehicle production and sales has lifted all major automakers than have already reported 1Q earnings, as they continue to beat and raise guidance.
As far as the financials are concerned, $CPS revenue and adjusted EBITDA show a clear inflection point in 2021, and with leaner costs from restructuring, coupled with the vehicle production turnaround, $CPS is poised to head to the moon gentlemen. Despite the clear path forward, the stock continues to trade ~85% lower than its ATH. A major reason for this was the conservative guidance set forth by management at the Q4 earnings call, but during the call, the CEO of the company himself said, "Clearly, our light vehicle production units and the guidance that we've used for '24, you can see there are — continue to be a bit conservative, I guess, is how I would describe it." Well, the numbers coming in so far for 24 are far from the conservative estimates put forth by management, and I expect a resounding beat will be the result at their Q1 call in two weeks.
Disclaimer: As mentioned above, I have opened a majority position in $CPS and as always do your own DD.
