Strattec's Smart Spending: Cautious Capital Allocation to Fuel Growth

Strattec Security STRT is focusing on disciplined capital allocation, which means that it is being selective in its spending, especially during uncertain times such as the U.S.-China tariff war and the potential production slowdown.Instead of pursuing risky investments, the company is following a strategy of disciplined capital investments that will create long-term value for the shareholders and will benefit core operations.

For fiscal 2025, Strattec aims to invest $7.5 million in capital expenditure, targeting three key areas — IT infrastructure, productivity enhancements and product development. As STRT upgrades its IT systems, it will gain the ability to enhance data management, boost automation and streamline internal operations. While modernizing equipment, the company will have the capability to boost manufacturing efficiency, and reduce costs. Moreover, investment in new automotive access and security solutions positions the company to stay competitive and expand its customer base.

The investment roadmap shows STRT’s overall transformation strategy. With the investment, the company will improve its operational efficiency and offer more advanced products. This will, in turn, strengthen its margins, preserve financial flexibility and maintain a solid cash position. Thus, Strattec will be capable of growing in the rapidly changing market while managing risks effectively.

AXL & BWA Pursuing Disciplined Capital Allocation Strategies

Both American Axle & Manufacturing Holdings, Inc. AXL and BorgWarner BWA are actively pursuing disciplined capital allocation strategies, similar to Strattec, as evidenced in their latest earnings calls.

For AXL, disciplined capital allocation is evident through its strategic exits from non-core joint ventures in China and the sale of its commercial vehicle axle business in India, both aimed at sharpening the focus on core operations. These moves, alongside American Axle’s upcoming combination with Dowlais, are designed to generate a strong free cash flow while deleveraging the balance sheet. This supports AXL’s more balanced capital allocation policy.

BorgWarner, meanwhile, has recently taken decisive steps to optimize its portfolio by exiting the EV charging business and consolidating battery operations, which are expected to yield $20 million in annual savings and eliminate $30 million in losses. These actions demonstrate a strong emphasis on return on invested capital (ROIC), with BorgWarner maintaining a 15% ROIC threshold for its portfolio decisions.

STRT’s Price Performance, Valuation & Estimates

Shares of Strattec have skyrocketed 97.6% over the past year, outpacing the 9.8% decline of the composite stocks belonging to the industry.

From a valuation standpoint, STRT trades at a trailing 12-month price-to-earnings (P/E) of 9.97X. This is below the broader industry average of 24.90X.

The Zacks Consensus Estimate for Strattec’s fiscal 2025 earnings has not witnessed any revisions over the past seven days.

STRT currently sports a Zacks Rank #1 (Strong Buy).  You can see the complete list of today’s Zacks #1 Rank stocks here.

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This article originally published on Zacks Investment Research (zacks.com).

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