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Gentex (GNTX) Should Be On Your Radar for Long-Term Profits

Zacks Equity Research

Gentex GNTX, the leading supplier of automatic-dimming rear view mirrors to the auto industry, held 94% of the global market share as of 2019.The car rearview mirror maker is a dominant player in its niche through continual investment in products, technological leadership and solid execution. In addition to offering world-class products, the firm is a highly reliable supply chain partner to the OEMs. Over the past year, the stock has increased 10.7% against the industry’s decline of 9.9%.

What’s Working in Favor of the Stock?

Gentex aims at generating long-term growth driven by product launches, improved product mix and unique technology platforms. The company remains steadfast in its efforts to provide unique and value-added solutions to customers that provide scalable platforms focused on the consumer and engineered specifically to meet each OEM’s requirements for the next several years. Its revenues have witnessed a CAGR of 7.8% during the 2017-2019 time frame.

The key to growth and maintenance of its market share is innovation and penetration. Notably, penetration of auto-dimming interior mirrors has risen from 25% in 2014 to 31.3% in 2018, while auto-dimming exterior mirror penetration has increased from 7% to 12.6% in the same period. The company’s main competitor Magna Mirrors, a division of Magna International MGA, had made inroads into auto-dimming mirrors in 2002, which adversely impacted Gentex’s market share. However, persistent investment, solid execution and innovation enabled the company to regain all lost market share over the years.

The firm’s full display mirrors (FDM) is a key growth engine and is likely to maintain top-line growth trajectory. FDM has grown rapidly and is launching a range of vehicles in 2020. During its recent earnings call, Gentex announced that it is shipping FDM on the Cadillac CT5, Land Rover Defender, Lexus LM, Chevy Corvette and the Mitsubishi eK Wagon and eKX vehicles.The newly launched FDM for Mitsubishi represents another win for Gentex with a Japanese automaker, after shipping FDMs to Toyota TM and Nissan NSANY. 

Beyond mirrors, Gentex’s Integrated Tool Module and HomeLink have significant growth opportunities, going forward. The firm’s growth avenues in tech products diversify and enhance prospects. Penetration for HomeLink is likely to grow, as the demand for connectivity to homes increases. Gentex’s HomeLink Connect app enables users to control their existing home automation devices. 

The company’s commitment for shareholder value maximization bodes well. It actively engages in share buybacks and dividend payouts, which boost investors’ confidence. The firm’s dividend per share has grown approximately 9% per year since 2015. While most of the companies are suspending dividends and share buybacks to conserve cash amid the pandemic-led financial crisis, Gentex remains committed to preserve shareholder value. During first-quarter 2020, the firm announced a 4% payout hike, representing the 10th consecutive year of dividend increase. Gentex’s low leverage of around 4% compared with the industry’s 45% increases its financial flexibility to tap onto growth opportunities.

Business Under Pressure Amid COVID-19 Pandemic

IHS Markit expects total light vehicle production to decline 20% year over year in 2020. Given the dreary scenario, Gentex has downwardly revised its guidance for 2020. The company now envisions net sales in the band of $1.58-$1.67 billion, down from its previous guided range of $1.91-$2 billion. Gross margin is anticipated in the range of 34-35% compared with the prior guided range of 36-37%. Capex and operating expenses are estimated within $60-$70 million and $195-$205 million, respectively. Amid coronavirus-led uncertainty, Gentex is withdrawing revenue forecast for 2021.

Positioned Well for Post-Pandemic World

Indeed, the coronavirus will weigh on the firm’s earnings and revenues in the near term. However, once the dust settles, Gentex seems well positioned to regain momentum on the back of superior products, continuous innovation and balance sheet strength. The Zacks Rank #3 (Hold) firm is also well positioned to cater to the emerging autonomous vehicle and connected vehicle space. The company is focused on developing dimmable devices that are enabled with new technologies to cater to increasing demand for technically-advanced auto parts. Considering the several tailwinds mentioned above, investors should retain Gentex in their portfolio at the moment. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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