Earnings Check-in: $STRT Some things you think are priced-in…. are not

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Strattec just reported FQ1’22 with sales of $100MM vs. $126MM PY and basically break-even on the net income line vs. $8MM PY. The stock is down ~7% on the news.

I am a bit surprised this wouldn’t be priced in more pre-earnings, but I get it: it is a microcap and actually seeing the poor results may be stark realization of what is going on.

As I mentioned in my first post,  as well as American Axle, investors are stepping out of the way of any of these names due to the semiconductor shortage that is causing auto OEMs to shutdown plants temporarily.

Here’s the company’s reasoning for the results and it is obvious:

Sales to Stellantis / Fiat Chrysler Automobiles (FCA) and General Motors Company in the current year quarter decreased over the same period in the prior year quarter due primarily to lower vehicle production volumes for which we supply components due to the continuing impact of the global semiconductor chip shortage.  Sales to the Ford Motor Company in the current quarter increased primarily due to the increased content on the F-150 pick-up truck for which we supply components. Tier 1 Customers and Commercial and Other OEM Customers were down in the current year quarter compared to the prior year quarter due to lower production vehicle volumes relating to the semiconductor chip shortage referenced above

Short-term, results will be ugly! Long-term, this bodes well for an elongated up cycle.

The reason why used car prices continue to make new highs is simply because people can’t get new cars. As new cars are continuously delayed, the existing fleet will continue to age, resulting in a large restocking cycle down the road of new cars. It isn’t that people don’t want cars – it is that they can’t get them. I’d much rather have that alternative than the latter.

Case in point, check out Lithia Motors inventory numbers lately and look how limited new vehicle inventory is (and used for that matter). They typically have 77 days supply of new cars, but instead now just have 24 days! 

Long-run, I still think Strattec stock is going for <3.5x normalized EBITDA, which is not too bad!

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