Tenneco Inc.TEN

Morningstar Rating

Stock Research and Analysis

by David Manger

Although Tenneco is a market-leading Tier 1 auto supplier for emission- and ride-control parts, we believe powerful end-market customers, cyclical demand, and intense competition limit the possibility of generating economic profits over the long run. Read more

Bulls Say

As the leading supplier of emission-control products, Tenneco is in position to benefit from an increase in environmental regulations and a growing diesel market.

Tenneco's ride-control segment recently launched a computerized electronic suspension system that sells for approximately $90, compared with standard shock systems that sell for around $12. Initial success has centered on luxury vehicles in Europe, but management believes the product could be a major revenue driver as vehicle demand rebounds.

The company has restructured the majority of its manufacturing capacity to low-cost regions, with numerous just-in-time facilities.

In coordination with General Electric GE, Tenneco is developing a product to reduce harmful emissions produced by diesel engines in locomotive and off-highway vehicles. Upon completion, the technology should be transferable to adjacent markets. Read more

Bears Say

Similar to most auto-parts suppliers, Tenneco has a fixed cost structure that makes it susceptible to wide swings in profitability when sales fluctuate.

The automotive- and truck-supplier industries are highly fragmented and price driven. Although Tenneco is the market leader for many of its products, it struggles to obtain pricing power.

A significant portion of Tenneco's OEM emission-control revenue comes from substrates, which are products the company does not have the manufacturing capacity to produce. Inability to pass through these costs could dilute profitability.

Tenneco is vulnerable to rising raw-material costs, as it struggles to pass on costs to OEM customers. Read more

Strategy

The company attempts to avoid cyclical downturns in the automotive industry by diversifying its products across various vehicle platforms, customers, and regions. As new environmental standards are enforced Read more

Management

Gregg Sherrill took over as chairman and CEO of Tenneco in January 2007 from Mark Frissora. Sherrill is an industry veteran, with more that 30 years of experience in the automotive industry. Prior to joining Tenneco, Sherrill worked for eight years Read more

Profile

Tenneco designs, manufactures, and markets emission-control and ride-control products for automotive aftermarket customers and original-equipment manufactures. The emission-control Read more

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