Buybacks and Higher Margins Bode Well For Visteon Corporation

With the company set to buy back another 18% of shares, solid growth prospects, and a discounted trading multiple, shares still look attractive

Jul 21, 2014 at 11:04AM

Share of Visteon (NYSE:VC) have been on a tear in 2014, up nearly 25% YTD as the company has embarked on a large share repurchase program and engaged in several intelligent transactions. Though the automotive supply company's stock has risen substantially, shares still look attractive given management actions to increase per share value and a renewed focus on the company's higher margin, faster growing climate and electronics businesses. 

$1 Billion Buyback

At the end of Q1, Visteon was still authorized to buyback another $875 million worth of stock until December 31st, 2015. As of March 31st, Visteon has bought back nearly 4 million shares at an average price of $83.33, good for more than 7% of the company. With shares currently hovering around $100, the Visteon can repurchase 8.75 million shares, or more than 18% of outstanding shares.

Additionally, the company entered into a $500 million accelerated share buyback (ASB) program during Q1 to take advantage of its cheap valuation; $375 million remained under the agreement at the end of Q1, and it's likely that Visteon repurchased a substantial amount of stock via the ASB in Q2, as 80% of the shares were expected to be received by the end of May. Though these buybacks would be substantially more accretive for shareholders if the stock price was cheaper, shares of Visteon still appear to be modestly undervalued.

Management is guiding for a midpoint of $680 million in EBITDA during FY2014-given an enterprise value of $3.82 billion, shares of Visteon trade at only 5.62 times 2014 EBITDA. This forecast does not include the company's acquisition of Johnson Control's electronics business, which will add about $60 million to annual EBITDA; the transaction cost Visteon $265 million. This acquisition, done at only 4.4 times EBITDA, the transaction will be accretive to earnings. 

Visteon announced in May that it was selling the majority of its interiors business to an affiliate of Cerberus Capital Management. The unit generated annual revenues of roughly $1 billion. While the sale price was not disclosed, Visteon likely sold the business for .4-.5 times sales, or $450 million at the midpoint. While Visteon has to contribute $95 million to the sold business, the transaction will add an additional couple hundred million to the balance sheet and allow management to focus exclusively on the climate and electronic businesses. The aforementioned forecast includes the interior business operations, which accounted for around $100 million in EBITDA. 

Overall, accounting for the effects of the recent transactions, Visteon probably trades at a little over 5 times 2014 adjusted EBITDA. Peers Delphi (NYSE:DLPH), Magna International (NYSE:MGA), and Denso (OTC: DNZOY) trade at 9, 7.25, and 5.6 times EBITDA, suggesting Visteon's valuation has room to expand.

Halla Visteon Climate Control (HVCC)

Now that the low margin interiors business has been divested, Visteon can allocate its capital expenditures on growth opportunities in its climate and electronics businesses.

From Q1 2014 to Q4 2015, Visteon expects to open up three new plants and expand on three existing ones for its HVCC business, in fast-growing auto regions such as Mexico, China, and Brazil. Management believes that these initiatives will drive 7% annual revenue growth in the climate business, while a shift away from the relatively expensive Korean manufacturing base to lower cost countries will drive adjusted EBITDA margins from 10.6% to 12%. Management projections for $6 billion in 2017 HVCC revenue on 12% margins result in annual segment EBITDA of $720 million.

HVCC is the #2 auto climate company in the world, and it appears to have significant competitive advantages in rapidly growing Asian and South American markets.

Electronics Business

Visteon's electronics segment grew 14.2% in 2013, and management is projecting double digit annual sales growth through 2017 before accounting for the Johnson Controls acquisition. 

The segment is now the second or third largest player in cockpit electronics, and Visteon will gain a larger presence in infotainment, instrument cluster, body electronics, and display electronics. Management is also calling for $40 million in cost savings by 2017, which is expected to improve adjusted EBITDA margins to 10%. 

If management can meets its forecasts, the segment should contribute roughly $200 in EBITDA at the end of 2017.

Bottom Line

At the end of 2017, Visteon expects to be generating about $920 million in annual EBITDA, a substantial jump from the $680 million that management is guiding for in 2014. With a strong growth forecast and a valuation at the low end of its peer group, shares of Visteon continue to look like a buy even after the run-up. With the company slated to buy back another 18% of the company, shares may rise rather quickly.  

Mike Williams has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Money to your ears - A great FREE investing resource for you

The best way to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as “binge-worthy finance.”

Feb 1, 2016 at 5:03PM

Whether we're in the midst of earnings season or riding out the market's lulls, you want to know the best strategies for your money.

And you'll want to go beyond the hype of screaming TV personalities, fear-mongering ads, and "analysis" from people who might have your email address ... but no track record of success.

In short, you want a voice of reason you can count on.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich," rated The Motley Fool as the #1 place online to get smarter about investing.

And one of the easiest, most enjoyable, most valuable ways to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as "binge-worthy finance."

Whether you make it part of your daily commute or you save up and listen to a handful of episodes for your 50-mile bike rides or long soaks in a bubble bath (or both!), the podcasts make sense of your money.

And unlike so many who want to make the subjects of personal finance and investing complicated and scary, our podcasts are clear, insightful, and (yes, it's true) fun.

Our free suite of podcasts

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. The show is also heard weekly on dozens of radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable. Rule Breaker Investing and Answers are timeless, so it's worth going back to and listening from the very start; the other three are focused more on today's events, so listen to the most recent first.

All are available for free at

If you're looking for a friendly voice ... with great advice on how to make the most of your money ... from a business with a lengthy track record of success ... in clear, compelling language ... I encourage you to give a listen to our free podcasts.

Head to, give them a spin, and you can subscribe there (at iTunes, Stitcher, or our other partners) if you want to receive them regularly.

It's money to your ears.


Compare Brokers