Seeking Alpha
Research analyst, growth, value, IPOs
Profile| Send Message|
( followers)  

Last week, automobile supplier Gentex (NASDAQ:GNTX) acquired the HomeLink business from fellow automobile company Johnson Controls (NYSE:JCI). The acquisition will complement Gentex's mirror division, but also provide a steady stream of revenue for the company from current non-customers.

From HomeLink's website:

· HomeLink is the world's most widely trusted and used wireless control system. It conveniently and safely enables you to open and close your garage door and front gate, and to turn your home's security system, outdoor lighting, interior appliances and electronics on and off. All from three buttons, smartly integrated into your automobile's interior.

Gentex CEO Fred Bauer had this to say of the acquisition, "HomeLink is a strategic and welcome addition to our portfolio of automotive products. Our two businesses share similar cultures and traits, both being people-oriented, innovative, leading and technologically-driven." For the past 10 years, Gentex has licensed the technology from Johnson Controls.

Gentex will pay $700 million for HomeLink, in a deal expected to close this year. After integration, Gentex expects the deal to add $125 to $150 million in annual sales. The company also expects the deal to increase gross profit margins by 1 to 1.5%.

I like this move for Gentex and think it will boost revenue and earnings per share more than the company and analysts think. In a presentation by Gentex, the company listed one key growth driver as "using mirrors as the platform to bring new/additional electronic features to vehicles." HomeLink is offered in all automobile brands, which gives Gentex access to new customers.

The integration of HomeLink adds an additional upgrade to Gentex's mirrors, which will increase revenue per unit. Gentex remains the number one player in the auto dimming mirror market. In 2012, the company had a huge 88% share of the market.

One more important thing to watch from Gentex is its other revenue segment. As a company highly dependent on the sale of automobile mirrors, investors should welcome revenue increases. Gentex has seen other revenue rise as it increases its share on airplanes. In 2012, the other segment grew 10% to $22.6 million. In the first quarter, other revenue increased a huge 30% to $6.5 million. The increase in sales is due to increased penetration on new aircraft.

In 2012, Gentex saw total sales increase 7% to $1.1 billion. Gross margins declined to 33.9%, from the previous year's 35.3%. Earnings per share increased to $1.17. Shipments of SmartBeam lights, auto dimming mirrors and rear camera displays increased 12%, 11%, and 8% respectively.

On July 24th, Gentex will report second quarter earnings. Analysts on Yahoo Finance see the company posting revenue of $274.7 million and earnings per share of $0.32. For fiscal 2013, analysts see revenue dipping slightly to $1.09 billion. Earnings per share are expected to increase to $1.26.

Shares of Gentex sit close to fifty two week highs. Investors should consider buying shares on a pullback. Shares have ran up 22% in 2013, and remain up 8% since my last article. Investors also enjoy a 2.3% yield, as Gentex recently increased its dividend payout. Also, Gentex has 4 million shares remaining on its buyback program, which would retire almost 5% of outstanding shares. This is a good long term buy for investors.

Source: Gentex Diversifies With HomeLink Acquisition