THRM - Embedded Expectations Analysis - 2019 03 13
Gentherm Incorporated (THRM:USA) currently trades below corporate averages relative to UAFRS-based (Uniform) Earnings, with a 14.5x Uniform P/E, implying bearish expectations for the firm. While management's concerns about growth, divestments, and expenses suggest the potential for near-term headwinds, the firm's leadership in its space and management's confidence in business awards suggest longer-term upside remains warranted.Specifically, while management's concerns about organic growth, the CSZ divestment, and stock option expense suggest the potential for near-term headwinds, market expectations for Uniform ROA to decline to levels not seen since the Great Recession appear too bearish, especially given their confidence about their Mercedes heated seat awards. As such, multiple expansion and equity upside remain warranted in the long-term.
Gentherm designs, develops, and manufactures thermal management technologies. The company's products provide solutions for automotive passenger comfort, battery thermal management, remote power generation, patient temperature management, and other consumer and industrial temperature control needs. The company has two segments: Automotive, which includes climate comfort systems, automotive cable systems, battery thermal management, and automotive electronic and software systems; and Industrial, which includes the company's remote power generation systems business, its patient temperature management systems business, its environmental testing equipment business and its research and product development division.
In 2009, just as the dust was settling from the last major equity and credit market crises, we launched a boutique research firm with the intention of breaking Wall Street’s biases and broken incentives:
- GAAP and IFRS have failed to provide rules for reliable financial statement reporting
- Stock analyst recommendations are not grounded in disciplined financial analysis
- Credit agencies have been set up to grossly fail in their responsibilities to investors and the public markets
- Utter lack of willingness of major research firms to employ the the most advanced forensic analysis available
We sought to provide investors and company analysts with a source of information that changed all that.
Many years later, our business model remains because little has changed on Wall Street.
- Corporate credit ratings remain years behind the fundamental underpinnings of company performance
- Stock analysts continue to make recommendations with deeply inherent biases
- Research firms have failed to break down the walls between credit, equity, and macroeconomic research
- The governing accounting bodies have created more leeway for mis-estimates and mis-classifications as financials have become unwieldy and overwhelming
The integrity of Valens Research is founded in our disciplined processes and analytics. No “star” analysts. No corporate advisory relationships. No-nonsense opinions and recommendations.
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