3Q Tops Our Forecast; Maintaining Buy Rating But Lowering Estimates
- 3Q18 (April) EPS of $2.53 (vs $2.11 last year) rose 20% YoY, 5 cents ahead of our expectation (5 cents below consensus) but essentially in-line with factoring in a lower-than-anticipated tax rate;
- Backlog fell 15% YoY to $2.0 billion on April 30th, as last year’s numbers were impacted by heavy dealer ordering with Thor still ramping up capacity, as well as a prolonged winter that negatively impacted sales to RV dealers in the North, but with no material dealer order cancellations;
- Conditions in May have improved, although 4Q18 (July) results will likely be impacted as elevated inventories from RV dealers in the North are worked through, and we are therefore lowering our FY18 EPS estimate to $8.23 (from $8.93);
- Our FY19 EPS estimate is now $9.97 (from $10.66), up 21%, helped by a 24% projected tax rate (vs an estimated 32% in FY18);
- With the shares trading for only 10.1x our 12-month forward EPS estimate of $9.29, or 84% of our 3-to-5 year EPS growth rate of 12%, our rating remains BUY for accounts willing to assume the risks of a cyclical industry and look past a likely difficult 4Q.
Gentex designs and manufactures automatic-dimming rearview mirrors and electronics for the automotive industry, dimmable aircraft windows for the aviation industry, and commercial smoke alarms and signaling devices for the fire protection industry. The company's key business involves designing, developing, manufacturing and marketing interior and exterior automatic-dimming automotive rearview mirrors that use electrochromic technology to dim in proportion to the amount of headlight glare from trailing vehicle headlamps. The company also designs, develops and manufactures various electronics features to the interior and exterior automotive rearview mirrors as well as interior visors and overhead consoles.
Great Lakes Review is located in Cleveland, Ohio, was founded in 1981 and became a division of Wellington Shields & Co. LLC in 2011. Great Lakes Review is a research boutique focused on the fundamentally-oriented investor seeking companies that dominate their respective specialty niche regardless of industry. The objective is to make money for the long-term by gradually accumulating a diversified portfolio from a universe of no more than 30 companies. Although short-term-oriented accounts will be alerted to trading opportunities, aggressive sell recommendations are triggered only by a deterioration in long-term fundamentals, not by short-term blips or investor fancy. Coverage of those names that lose their earnings momentum or earnings predictability may be dropped and replaced with more vital candidates.
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