The coming breakup of Aptiv (NYSE: APTV) appears to be a winning strategy.
The company produces power and data distribution for autos in addition to software and safety solutions. Splitting the two businesses into separate entities could improve investor sentiment and boost the stock.
Investors often place less value on automotive companies than those with fast-growing revenue and profits. The spinoff is scheduled to occur by the first quarter of 2026.
Aptiv will split into one company that provides electrical distribution systems (EDS) for autos and another one that sells software and safety solutions for the auto industry. The second one will keep the Aptiv name.
The EDS business generated sales of $8.3 billion in 2024, producing profit margin of 9.5% on earnings before interest, taxes, depreciation, and amortization (Ebitda). Safety and software reported revenue of $12.2 billion and Ebitda margin of 18.8%. This unit also can attract clients who are not involved in the automotive manufacturing business.
Aptiv’s total revenue registered $19.7 billion in 2024, down 2% from 2023. The net income profit margin was 9.1% down from 14.5%.
Analyst views, stock data
Wall Street analysts recently increased their earnings estimates for Aptiv for 2025 and 2026. Analysts predict the company will earn $7.48 a share this year, up from $2.61 in 2021, according to FactSet. It has a $17 billion market capitalization.
The stock has lost 9% over the past five years. But it has gained 12% over the past year, as America’s short-lived love affair with electric vehicles has started to taper. Drivers tired of range anxiety, costs, and choosing hybrid cars with self-charging batteries. Also, drivers are keeping their cars for longer durations to avoid expensive car payments.
You may recognize Aptiv’s predecessor, Delphi Automotive, which spun off from General Motors in 1999. In 2005, Delphi filed for bankruptcy, and in 2017 it spun off Aptiv. In 2022, Aptiv acquired Wind Ricer, a communications software company.
The spinoff from Delphi was intended to help Aptiv emerge as a “better automotive supplier,” wrote Baird analyst Luke Junk. The current move “is more orienting the company toward higher return opportunities overall.”
If that works, shareholders should be pleased.
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