EUR 850.00 For Business Accounts Only

Morningstar | Gentex's Second Quarter Shows It Remains in Good Shape While Buybacks Fuel EPS Growth. See Updated Analyst Note from 19 Jul 2019

Gentex's second-quarter earnings showed revenue growth exceeding industry light vehicle production and EPS helped by stock repurchases. We are raising our fair value estimate to $23 from $21 due to a lower share count from further 2019 buybacks modeled, time value of money, and a slightly higher long-term return on new invested capital assumption. Diluted EPS of $0.42 beat consensus of $0.40 and grew 5% year over year, but we calculate flat EPS growth excluding buybacks. Revenue grew 3% to also beat consensus, which was far better than the industry's production decline of 8%. Gentex's top line often outperforms industry production due to its dominant 92% market share of auto-dimming mirrors and new advanced feature mirrors such as the full display mirror. We expect continued outperformance because we feel FDM and auto-dimming airplane windows have a long way to market saturation.

The press release also talked about more resource allocation to large area dimmable devices, such as sunroofs, which we think is a good idea as cars continue to take on more electronics content. There could be display opportunities for glass in automotive interiors in an autonomous vehicle world as well in our opinion. Growth avenues outside the mirror we think are a good rebuttal to long-standing, and unfounded fears, that cameras will replace mirrors. As we wrote in our April 24 note, customers are focusing more on electric vehicles and AV programs than mirror replacement because the cost and logistical issues of replacing mirrors is so high. Also, the AV market may see fleet vehicles not having mirrors and personal AVs having them.

Management tweaked its 2019 revenue guidance while also raising 2019 gross margin to 36.5%-37.5% from 36%-37%, sending the stock up over 8% the morning of July 19. We think management continues to do a good job mitigating annual price reductions of 2%-3% from customers and tariff headwinds, which took 60 basis points from gross margin in the quarter.