Harman International Beats Estimates: Shares Poised For A Rally

| About: Harman International (HAR)

Harman International Industries, Inc (NYSE:HAR) designs, manufactures, and markets audio and electronic systems. The company's automotive segment designs, manufactures and markets audio, electronic and infotainment systems for vehicle applications and its consumer segment designs, manufactures and markets audio and electronic systems for home, mobile and multimedia applications.

The shares of the company registered a 52-week low of $25.53 and a 52-week high of $52.75. Technically the shares are poised to explode in the near-term to catch up with the company's compelling fundamentals.

Q4 Operating Income Up 174%

Shares of Harman rallied at the end of last week after the company posted strong fourth quarter earnings that topped on both the top and bottom lines. The company's Q4 Operating Income is up 174% to $71 million. Full Year OI is up 58% to $300 million and sales up 16%.

  • Q4 EPS on non GAAP basis up 100% to $0.67
  • Full Year non GAAP EPS up 41% to $2.93
  • Eleventh consecutive quarter of year-over-year improvement in sales and earnings
  • BRIC Markets continue to lead sales growth driven by 42% increase in China

Infotainment Division Highlights

In Fiscal 2012, the company, whose brands include JBL and Harman Kardon, continued to extend its leadership in automotive audio globally:

  • The company won cross car-line Harman Kardon audio business with BMW.
  • Harman extended the lifecycle for Harman Kardon audio business with Mercedes-Benz.
  • During the fourth quarter, the company launched Harman Kardon headphones across Apple (NASDAQ:AAPL) stores, and JBL headphones in Wal-Mart (NYSE:WMT).

Harman continues to drive new business in embedded infotainment systems globally:

  • General Motors (NYSE:GM) chose Harman Infotainment system to replace a competitive system. This $900M infotainment award is Harman's first with General Motors.
  • Harman won contracts with Volkswagen Group valued at $400M.
  • The company won a $2B award from BMW to bring advanced connectivity to future generation infotainment systems.
  • Emerging market breakthrough: $500M infotainment awards in China with Geely, BAIC, Changan and in India with Tata Motors (NYSE:TTM).
  • Major launches this year included: BMW Connected Drive, Toyota Touch & Go and Toyota Entune for Toyota Motor (NYSE:TM), and Audi MMI 3G+.
  • The company launched a new scalable infotainment system in Ferrari's F12 Berlinetta featuring the latest in-dash and connected functionality.
  • To meet the growing demand for entry-level embedded infotainment systems, Harman launched a new scalable infotainment platform targeting entry-segment and mid-segment vehicles.

Professional Division Highlights

In FY12, Harman delivered equipment for over 20 new stadium and large venue audio installations ranging from the Staples Center in Los Angeles to the People's Great Hall in Beijing, China.

Harman's new IDX systems were sold and installed at eight international airports and train stations. The company's products continue to take center stage at major special events such as the London Olympic Games, Super Bowl, the Grammy Awards, and the UEFA Euro 2012 Soccer Championship Games.

(Source: Bloomberg)

Recent News Flow

Dividend Announcement: The company declared a cash dividend on August 10, 2012 of $0.15 cents per share for the fourth quarter ended June 30, 2012. The quarterly dividend will be paid on September 4, 2012, to each stockholder of record as of the close of business on August 20, 2012. (Read more)

Acquisition of an Infotainment Company: Harman enters into definitive agreement to acquire Interchain Solution of Bangalore, India to expand Android-based Infotainment and Telematics offerings. Interchain notably produces devices that sync with Android devices. Harman would also inherit a client base including TeleAtlas, MapmyIndia and ALJACS Toyota. Acquiring Interchain is forecast to strengthen the company's Infotainment division, which accounts for 55% of its net revenues. The segment posted 15% year-over-year growth in the fourth quarter. (Read more)

Technical Analysis: Shares are About to Explode

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In the short-term the shares of the company are expected to rise based on fourth quarter earnings and positive news flow. The MACD suggests that the stock has significant upside left in the near-term. We expect the stock to retest its recent high of $52.75 shortly.

The 200-Day SMA is located at $42.40, which will lend solid support to the stock. The 20-Day SMA line and the 50-Day SMA line are poised to cross over the 200-Day SMA line in the near-term. This will fuel the stock climbing upwards. Chart patterns clearly suggest that the stock is about to cross $50.

Harman Stock Outlook For Long-Term

Harman International CEO Dinesh Paliwal commented, "We are highly focused on shareholder value creation, through organic growth, strategic acquisitions and directly through our dividend and share buyback programs." Paliwal added, "We have worked hard to build a strong balance sheet that facilitates all of these strategies. In the last quarter, we took advantage of market opportunity to repurchase our stock and announced the doubling of our dividend."

The shares are currently trading at a one-year forward PE of 12 and at an estimated PEG ratio of 0.60, which indicate that the stock is significantly undervalued. Given the compelling fundamental outlook and strong balance sheet of the company as described above, we expect the share price to double from the current level in the long-term.

Disclosure: I am long GM, WMT.