On Tuesday morning, Volvo AB (NASDAQ:VOLVY) reported a 15% year-over-year increase in Q1 sales and expanding margins across all of its business segments, thanks to strong sales of heavy trucks in Europe and North America. Three European analysts upgraded Volvo's stock on the news, with target prices between $49.50 and $59.10, and the market responded with a 5% price gain overnight. And there was much rejoicing in the realm of this forgotten automaker.
Indeed, many investors seem to have largely put Volvo out of their minds since Ford (NYSE:F) acquired the car division in 1999, but the company has been trucking along under the radar all along. With $8 billion in worldwide sales this quarter and a $20 billion market cap, this is no mom-and-pop operation. It's still a hungry company, and the purchase of Renault and Mack trucks in 2001 wasn't enough to satisfy the craving. Volvo recently acquired 13% of Nissan Diesel, which in turn controls 50% of Dongfeng Motor. That's the largest truck manufacturer in China, a market where Volvo had mainly been selling construction equipment. Now Volvo, Dongfeng, and Nissan Motors (NASDAQ:NSANY) are exploring ways to capitalize on the opportunities that await behind the Great Wall.
That might be enough to make up for the anticipated drop in European truck sales once new, tougher emissions standards take effect come October. Customers are said to be stockpiling orders now, rather than waiting for cleaner but more expensive power plants. Volvo seems to be looking beyond that bump in the road, as seen in the rollout of a diesel-electric hybrid engine for heavy trucks, due for mass production in 2009.
Volvo may not be selling cars anymore, but it's still the same solid company with the same commitment to safety and excellence. The challenge lies in translating those values into superior business performance, but it looks to me as though the company is doing a great job at the moment.
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Anders Bylund is a real Swede stock picker, and he does own shares in both Nissan and Volvo. The Motley Fool's disclosure policy is a well-oiled machine.
