you wouldn’t know that by looking at meritor stock ticker mtor shares of the troy mich–based maker of heavyduty truck parts have dropped more than 23 to 2131 this year a sign that investors are fretting not only about issues like inflation and the business cycle but also about the company’s future in a world that’s increasingly going electric the latter point isn’t lost on meritor the company has been involved in vehicle electrification for more than a decade launching its first hybrid drivetrain back in 2009 in 2017 the company started focusing on its electric axle platform in which electric motors directly power an axle more recently meritor has won business from hyliion holdings hyln and hino motors 7205japan while investing in sea electric in august if investors can get over some of their fears the stock could soar meritor began life as timken detroit axle in 1909 which provided truck parts as the us economy transitioned from horsedrawn wagons after a series of mergers and spins meritor automotive was created in 1997 the company sold its car business in 2011 focusing exclusively on commercial vehicles these days it makes truck axles driveline parts brakes and suspensions and has been moving into truck electrification ceo chris villavarayan told barron’s that meritor’s customers have driven more than one million miles testing company products that enable electric trucks today meritor is working with more than 30 truck makers on electrification the company’s perceived obsolescence isn’t the only thing bugging investors of course as with all auto companies rising costs are taking a toll steel prices which have nearly quadrupled over the past year have taken a bite out of profits steel should cease to be a problem in the near future not because prices will go down but because meritor has contracts that will pass higher steel costs on to its customers those contracts though are on a three to sixmonth lag that cost meritor 30 million in steel and freight costs in its most recent quarter a big headwind compared with 107 million in ebitda—or earnings before interest taxes depreciation and amortization—that the company reported in its most recent quarter meritor managed through it generating a profit of 62 cents a share beating forecasts of 50 cents meritor hasn’t been rewarded for its solid financial performance however its shares trade for just 54 times fiscal 2022 earnings estimates of 393 a share on sales of 43 billion fiscal year 2022 ends in september 2022 that’s a very lowvaluation multiple even for meritor whose shares have averaged a multiple of 11 times forwardyear estimated earnings over the past five years competitors dana dan and oshkosh osk trade at 85 times and 13 times estimated earnings over the coming 12 months respectively while the sp 500 index trades at roughly 20 times with the company expected to earn 413 a share in calendar year 2022 returning to its previous multiple of 11 times earnings would mean the stock could trade as high as 45 more than double its current price even without a return to previous multiples big gains are possible rbc analyst joe spak who sees the company earning 437 in calendar 2022 arrives at a 29 price target implying a priceearnings ratio of less then seven times spak’s estimate is higher than the street’s he sees earnings driven by strong demand for commercial vehicles into 2022 what’s more spak wrote recently that improving semiconductor supply should reduce production volatility a global chip shortage has roiled the automotive industry leading to low inventories higher costs and lost production though supplychain stress is still a risk says villavarayan the backlog of undelivered trucks is growing to really push the multiple higher investors need some excitement—and meritor might be able to deliver it it is hosting an investor event on dec 7 and is expected to announce its latest multiyear plan the socalled m2025 the previous plan which is almost complete was all about financial execution and laying the groundwork to grow into vehicle electrification management wanted to generate 4 in per share earnings and 125 ebitda margins by the end of this year—numbers they likely would have reached without covid19 and the supplychain problems it introduced the m2025 plan will focus on improving profit margins too investors should also expect the company to review its electric powertrain options which can be used in battery or fuelcell truck applications “there will certainly be a lot more on electrification there has to be” says villavarayan he is focused on building meritor’s electric business in not only bigrig class 8 trucks but in mediumduty trucks too convincing investors that meritor can participate in the electricvehicle future could give the stock the jolt it needs