Update: Harman International Earnings

Aug.20.14 | About: Harman International (HAR)

Summary

The company’s recent quarterly results beat on the top and bottom lines.

We still have a long-term bullish thesis but question the company’s valuation.

Given the company’s cost saving initiatives and strong presence in the “connected car”.

Harman International (NYSE:HAR) managed to post fiscal 4Q earnings of $1.25 a share (beating $1.21 consensus) and revenues were $1.44 billion (marginally beating consensus). Sales were up 24% y/y and EPS was up 38% y/y. Its auto backlog was up to a record $20.5 billion (compare that to its $5.35 annual revenue rate).

Since our initial article in July of last year, shares are up 107%. And since our August follow-up, shares are up 70%. In August, we put a $120 price target on the company -- it's now very close to that level. However, the market potential for the stock is still very large, as we noted,

We see the biggest tailwind for the company being its cloud computing platform. The Aha cloud platform enables car users to have access to thousands of Internet services through their Infotainment system without requiring any updates to the car software. This is the only automotive cloud computing solution on the market. Harman is also now able to bundle Aha with its Insight solution that can monitor a vehicle's performance through the Infotainment system. Car manufacturers can now remotely monitor fuel usage, tire pressure or oil levels and determine user preferences.

The company continues to impress with its ability to grow revenues and earnings. Fiscal 2016 EPS is now expected to come in at $6.95, nearly a dollar higher than the $6 the company was projecting when we first covered it. Its 16x forward P/E is still below our justified 20x multiple. With a 20x multiple on 2016 EPS expectations, the new upside could be to $139.

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