Here's Why You Should Retain Gentex (GNTX) Stock for Now
Gentex Corporation GNTX is engaged in supplying automatic-dimming rear-view mirrors and electronics to the automotive industry, fire protection products to the fire protection market and dimmable aircraft windows to the aviation market.
The company is poised to benefit from product launches, improved product mix, unique technology platforms and the adoption of other value-added features. Discouragingly, soaring selling, general and administrative (“SG&A”) expenses and research and development (“R&D”) costs are denting its margins.
The Zacks Consensus Estimate for GNTX’s 2023 revenues and earnings per share is pegged at $2.27 billion and $1.77, implying a rise of 18.1% and 30.2%, respectively, from the year-ago reported number.
Let us discuss the factors that highlight why investors should retain the stock.
Growth Indicators
Gentex aims to generate meaningful growth driven by product launches, improved product mix, unique technology platforms and the adoption of other value-added features.
Full display mirror (“FDM”) is one of the firm’s key growth engines and is likely to boost its top-line growth trajectory. Through the first nine months of 2023, the company shipped around 1.75 million units of FDM and expects full-year volumes to be at least 500,000 units higher than the 2022 level. In the third quarter of 2023, the company witnessed 28 net new launches of interior and exterior automatic-dimming mirrors, with HomeLink and FDM leading the way.
Its upbeat outlook instills optimism. Gentex’s 2023 net sales are estimated in the range of $2.2-$2.3 billion, higher than $1.9 billion recorded in 2022. The gross margin is now projected in the band of 32.5%-33%, up from 31.8% in 2022. Gentex expects calendar 2024 revenues to be between $2.45 billion and $2.55 billion. The company targets to achieve a gross margin of 35-36% by the end of next year.
Gentex’s Integrated Tool Module and HomeLink offer significant growth opportunities. The firm’s growth avenues in tech products diversify and enhance its prospects. Penetration for HomeLink is likely to grow as the demand for connectivity to homes increases. Gentex’s HomeLink Connect application enables users to control their existing home automation devices. Partnership with Simplenight is expected to bolster Gentex’s connected car offerings. Strategic buyouts of Air-Craftglass, Guardian Optical Technologies and Vaporsens have augmented Gentex’s product portfolio.
The firm’s healthy balance sheet and commitment to shareholder value maximization are praiseworthy. Gentex’s high current ratio of 3.85 and unlevered balance sheet compare favorably with the industry’s 1.29 and increases the firm’s financial flexibility to tap into growth opportunities. Gentex remains committed to preserving shareholder value via buybacks and dividends. During full-year 2022, it returned $227 million to shareholders via dividends ($113.1 million) and stock buybacks ($113.9 million). As of Sep 30, 2023, the company had nearly 18 million shares remaining for buyback per its share repurchase plan. Gentex’s return on equity of 18% compares favorably with the industry’s 4% and the auto sector’s 12%, underscoring management's efficiency in rewarding shareholders.
Concerns
Soaring SG&A and R&D costs are denting Gentex’s margins and the trend is expected to continue amid new product launches, value analysis/value engineering (“VAVE”) initiatives and technological developments. Competition on an international, national and local level could affect the company’s ability to win new business. The company also anticipates its fourth-quarter revenues and margins to be negatively impacted by the united auto workers (“UAW”) strike.
Zacks Rank & Key Picks
GNTX currently carries Zacks Rank #3 (Hold).
Some better-ranked players in the auto space are Volvo VLVLY, Renault SA RNLSY and BYD Company Limited BYDDY, each sporting Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for VLVLY’s 2023 sales and earnings indicates year-over-year growth of 4.2% and 65.6%, respectively. The EPS estimates for 2023 and 2024 have increased by 32 cents and 11 cents, respectively, in the past 60 days.
The Zacks Consensus Estimate for RNLSY’s 2023 sales and earnings indicates year-over-year growth of 4.5% and 128.1%, respectively. The EPS estimates for 2023 and 2024 have increased by 15 cents and 2 cents, respectively, in the past 30 days.
The Zacks Consensus Estimate for BYDDY’s 2023 sales indicates year-over-year growth of 160.2%. The EPS estimates for 2023 and 2024 have increased by 59 cents and 55 cents, respectively, in the past 60 days.
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