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TRW Faces Lawsuits for Takeover by ZF; Operations Strong

On Oct 15, 2014, we issued an updated research report on TRW Automotive Holdings Corp. (TRW). This Zacks Rank #4 (Sell) stock reported positive earnings surprises in the trailing four quarters.

TRW Automotive reported a 14.9% increase in its second-quarter 2014 earnings to $2.32 per share from $2.02 (all excluding special items) a year ago. Also, earnings per share exceeded the Zacks Consensus Estimate by 20 cents.

Revenues in the quarter grew 1.8% to $4.59 billion, driven by increasing demand for the company's active and passive safety technologies, rising vehicle production volumes in major markets and the positive impact of currency translation. However, this increase was partially offset by the negative impact of the exit of some businesses in the North American brake component and assembly operations. Revenues beat the Zacks Consensus Estimate of $4.56 billion.

In Sep 2014, TRW Automotive signed an agreement to be acquired by ZF Friedrichshafen AG for $13.5 billion. However, TRW Automotive’s shareholders have filed multiple lawsuits, seeking investigation into whether the board obtained maximum value for them. One shareholder even filed a lawsuit to stop the takeover, claiming that the purchase price is low. Moreover, after the announcement, Moody's Investors Service placed the Ba1 Corporate Family and Ba1-PD Probability of Default ratings of TRW Automotive under review for downward revision.

Meanwhile, TRW Automotive continues to invest in innovative technologies that enable it to win contracts. The company is also signing long-term supply deals to boost sales. Further, TRW Automotive signed an agreement to divest its engine valve business to Federal-Mogul Holdings Corporation (FDML) that will allow the company to focus on its active and passive safety technology products.

For full-year 2014, TRW Automotive’s revenues are expected in the range of $17.5–$17.7 billion, up from the previous guidance range of $17.4–$17.7 billion. In the third quarter of 2014, TRW Automotive is expected to report total sales of $4.2 billion.

Key Picks from the Sector

Some auto stocks worth considering include Toyota Motor Corporation (TM) and Tata Motors Limited (TTM). Both the stocks have a Zacks Rank #1 (Strong Buy).

Read the Full Research Report on TM
Read the Full Research Report on TRW
Read the Full Research Report on TTM
Read the Full Research Report on FDML


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