Veoneer Inc: AI Stock Could Rally 62%…& That’s Just to Start

Veoneer Inc

Veoneer Inc: Vehicle AI Play Could Jump on Better Execution

In my final editorial for the year, I dove into the trash heap face first and came up with a beaten-up vehicle artificial intelligence (AI) stock out of Sweden, the home of ABBA, the famous pop band from the 1970s.

Veoneer Inc (NYSE:VNE) develops advanced driver-assistance systems (ADAS) and autonomous driving (AD) solutions for vehicle manufacturers.

VNE stock once traded as high as $57.93 in September 2018. But the company has seen its market cap steadily erode from $6.5 billion to the current $1.8 billion.

At its current level, VNE stock is worth a look for risk capital after selling off 32% this year.

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Veoneer Inc develops software, hardware and systems for active safety, autonomous driving, occupant protection, and brake control.

We’re talking about technologies such as vision systems, radar, LiDAR (light detection and ranging), night vision, electronic controls, and human-machine interfaces.

The chart of Veoneer stock is nasty, with a breakdown from the January highs followed by a bearish downside gap in April.

VNE stock is drifting in a sideways channel between $14.00 and $18.00. A breakout could see VNE stock recover its gap at around $26.00, representing a move of about 62%.

Chart courtesy of StockCharts.com

VNE stock has technical support at around $14.00, while the immediate upside target is the previous sideways channel bouncing between $22.50 and $32.50.

The Contrarian Bull Case for VNE Stock

The selling in Veoneer stock is supported by operational issues at the company that need to be resolved. If VNE can improve its results, the market would likely reward the stock with a rally. But it won’t be easy.

Revenues edged higher in two of the past three years, but they’re expected to contract 14.4% to $1.8 billion in 2019.

Fiscal Year Revenues (Billions) Growth
2015 $1.6
2016 $2.2 39.6%
2017 $2.3 4.7%
2018 $2.2 -4.1%

(Source: “Veoneer Inc.MarketWatch, last accessed December 19, 2019.)

There is some optimism, as Veoneer is expected to grow its revenues 7.6% to $2.05 billion in 2020. (Source: “Veoneer, Inc. (VNE),” Yahoo! Finance, last accessed December 19, 2019.)

Earnings before interest, taxes, depreciation, and amortization (EBITDA) was positive from 2015 to 2017, before moving to negative in 2018.

Fiscal Year EBITDA (Millions) Growth
2015 $40.1
2016 $84.7 111.2%
2017 $62.0 -26.8%
2018 -$105.0 -269.4%

(Source: MarketWatch, op. cit.)

Veoneer is also losing money; it’s years away from actually becoming profitable.

Fiscal Year GAAP Diluted EPS Growth
2015 -$0.34
2016 -$0.61 -76.9%
2017 -$2.48 -308.6%
2018 -$3.17 -27.7%

(Source: MarketWatch, op. cit.)

The adjusted loss is estimated to rise to $5.13 per diluted share in 2019, compared to $2.91 in 2018. Veoneer is expected to narrow the loss to $3.83 per diluted share (or as low as $2.61) in 2020. (Source: Yahoo! Finance, op. cit.)

Veoneer is also dealing with negative free cash flow (FCF), which surged in 2018. Given the losses and expected revenue contraction in 2019, VNE will likely struggle with its FCF.

Fiscal Year FCF (Millions) Growth
2015 -$34.5
2016 -$109.8 -218.3%
2017 -$111.2 -1.3%
2018 -$367.0 -230%

(Source: MarketWatch, op. cit.)

A positive amid the operational issues is the strong cash balance of $1.1 billion and the debt of $326.0 million. The healthy balance sheet will allow time for Veoneer to sort things out. (Source: Yahoo! Finance, op. cit.)

Analyst Take

The road will not be easy for Veoneer Inc, but I like the business going forward. I believe VNE stock could rally if the company can turn things around.

And while it loses money, VNE does trade at a reasonable 0.92 times trailing sales and 1.0 times book value.