Adient PLC (NYSE:ADNT) Is Set To Benefit from the Auto Sector Recovery

October 02, 2017, 09:48 am ET, BY Simon M.- Contributor| Editor: Thomas H. Kee Jr. (Follow on LinkedIn)

Adient PLC (NYSE:ADNT) is a major supplier of seats to many of the big automakers in the world with operations spread over 33 countries. The company stands to benefit from the recent recovery in the auto sector even as many countries recover from the negative impact of the global recession and financial crisis of 2008.

The auto sector has witnessed global car sales of over 70 million units since 2014, which is evidence of the recovery that is ongoing in the industry. Adient stands to benefit significantly from the increasing global vehicle sales as many manufacturers turn to the company to provide seating equipment for many of their vehicle brands.

The company recently announced the acquisition of Futuris Group, which is a privately held seating manufacturer, which is crucial for Adient’s future growth. This acquisition will allow Adient to meet its current backlog of orders given that demand for its seats had outstripped its current supply capacity.

Adient is still trying to find a solid footing in its own operations having been spun off from Johnson Controls International plc (NYSE:JCI) in October 2016. The recent acquisition will boost the company’s output while exposing it to markets in Asia such as China as well as major automakers such as Tesla Inc (NASDAQ:TSLA).

Futuris has significant exposure to original equipment manufacturers in Asia and China, which is a plus for Adient’s future profitability given that China is currently the largest auto market. Although the company’s top line profits have not expanded significantly in the recent past, its margins are enviable and the company’s future prospects are bright due to its large market share.

The company recently received a vote of confidence from friendly activist group, Blue Harbour Group, which increased its stake in the company to 6.2%. This is Blue Harbour’s biggest investment at $410 million based on the assumption that Adient can grow its margins and deliver significant value to its investors.

The question remains whether Adient is a good investment at its current price and whether it will deliver value to shareholders over the long term.

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