Buybacks and Higher Margins Bode Well For Visteon Corporationhttp://www.fool.com/investing/general/2014/07/21/buybacks-and-higher-margins-bode-well-for-visteon.aspx Mike Williams
July 21, 2014
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.