TRW Automotive Holdings CorporationTRW

Morningstar Rating

Stock Research and Analysis

by David Whiston, CPA, CFE

TRW Automotive continues to show stability in the volatile automotive supplier universe, but the stock suffers from a heavy debt load. As a top supplier in the attractive niche of safety products, TRW can continue to strengthen its balance sheet without Read more

Bulls Say

Lower safety content per vehicle in emerging markets is a great growth opportunity.

TRW has a long record of developing safety innovations and spends about 6% of sales on R&D and engineering to help drive growth.

TRW has reduced its net debt in five of the last six years, though net debt may increase this year.

Recent regulations issued by the National Highway Traffic Safety Administration are requiring more safety systems, such as electronic stability control, to be standard in the U.S. by 2012.

Bears Say

TRW faces powerful customers that dictate price decreases as they compete for share in mature auto markets.

Like most auto-parts suppliers, TRW has significant fixed costs, so a small slowdown in sales could translate into a very large drop in profits.

Raw-material costs for items such as steel are volatile, which makes margin expansion very difficult.

The market is very reluctant to pay a premium for the earnings of even good auto-parts suppliers just because of these firms' ties to the auto industry.

TRW's debt load is still high, and the firm may borrow even more in the future. Read more

Strategy

TRW's strategy centers on constantly reducing costs and achieving leadership in technology and quality. Cost reductions come from moving production and labor to low-cost countries, while quality and Read more

Management

John Plant is president and CEO. Plant is an automotive veteran having previously been president of Lucas Varity Automotive, which was acquired by TRW in 1999. Many members of senior management came from this acquisition. We do not expect to see any Read more

Profile

TRW Automotive operates in three segments. The chassis systems group produces steering and brake systems; the occupant safety group makes air bags, seatbelts, and safety Read more

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