A month has gone by since the last earnings report for Sensata (ST). Shares have added about 13% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Sensata due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.
Sensata Q4 Earnings Surpass Estimates, Revenues Up Y/Y
Sensata reported relatively healthy fourth-quarter 2020 financial results, with the top and bottom lines surpassing the respective Zacks Consensus Estimate. The company recorded impressive growth within the automotive market (up 970 basis points year over year) and heavy vehicle market (up 990 basis points) driven by strength and flexibility of its business model.
On a GAAP basis, net income in the December quarter more than doubled to $121.7 million or 77 cents per share from $53.5 million or 34 cents per share in the prior-year quarter. The improvement was primarily driven by top-line growth and income tax benefit.
On an adjusted basis, quarterly net income was $134.7 million or 85 cents per share compared with $141.7 million or 89 cents per share in the year-ago quarter. The bottom line surpassed the consensus estimate by 6 cents.
In full-year 2020, Sensata recorded GAAP earnings of $164.3 million or $1.04 per share compared with $282.7 million or $1.75 per share in 2019. Non-GAAP earnings in 2020 were $349.2 million or $2.21 per share compared with $575.9 million or $3.56 in 2019.
Quarterly revenues aggregated $906.5 million compared with $846.7 million in the year-ago quarter. The improvement was largely driven by sustained business activities in Automotive and Industrial businesses with a rebound in market which, in turn, translated into higher order schedules. The top line beat the consensus estimate of $905 million. Sensata’s robust supply chain mechanism and flexible business model were additional tailwinds. This, in turn, demonstrates healthy prospects for Sensata’s core sensing operations, thereby accelerating its growth momentum in the long run. Total revenues in 2020 aggregated $3,045.6 million compared with $3,450.6 million in 2019.
Performance Sensing revenues improved to $689 million from $632.9 million in the year-ago quarter. Accounting for 76% of total revenues, the increase was primarily due to solid automotive, heavy vehicle and off-road businesses. Segment operating income was up to $185.1 million from $171.5 million due to higher revenues and savings from restructuring and other cost-reduction initiatives.
Sensing Solutions revenues were up to $217.5 million from $213.8 million in the year-ago quarter. Accounting for 24% of total revenues, the year-over-year improvement was led by ramped up production and uptrend in aerospace business. Segment operating income increased to $70.7 million from $69.1 million mainly due to higher revenues and cost cuts.
Total operating expenses were $752.3 million compared with $726 million in the prior-year quarter, primarily due to higher cost of revenues. Adjusted operating income was $195.6 million, up from $192.5 million in the year-ago quarter. The uptick was mainly caused by higher revenues, savings from cost reduction programs and favorable foreign currency translation effects. Adjusted EBITDA totaled $228 million during the quarter.
Cash Flow & Liquidity
In 2020, Sensata generated $559.8 million of net cash from operating activities compared with $619.6 million in the prior-year period. With effective working capital management and cost reductions, free cash flow for the same period came in at $453.1 million compared with $458.3 million a year ago.
As of Dec 31, 2020, the company had $1,862 million in cash and equivalents with $3,963.7 million of net long-term debt compared with respective tallies of $774.1 million and $3,219.9 million in the prior-year period. Markedly, management has temporarily suspended its share repurchase program in a bid to enhance financial flexibility amid the COVID-19 crisis.
Sensata has provided guidance for the first quarter as well as for full year 2021. The company expects first-quarter revenues in the range of $875-$915 million (up 13-18% YoY). Adjusted earnings per share are estimated in the band of 67-77 cents (up 26-45% YoY), while adjusted net income is expected to be $106-$122 million (up 27-47% YoY). Sensata has undertaken several cost-saving initiatives to enhance its financial flexibility amid the global pandemic.
For 2021, Sensata expects revenues in the range of $3,425-$3,575 million (up 12-17% YoY). Adjusted earnings per share are estimated in the band of $3.06-$3.42 (up 38-55% YoY), while adjusted net income is expected to be $488-$544 million (up 40-56% YoY).
How Have Estimates Been Moving Since Then?
It turns out, estimates review have trended downward during the past month.
Currently, Sensata has an average Growth Score of C, however its Momentum Score is doing a bit better with a B. Following the exact same course, the stock was allocated a grade of B on the value side, putting it in the top 40% for this investment strategy.
Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions has been net zero. Notably, Sensata has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.