Gentex Reports Strong Quarter, Still 25% Upside In Shares

| About: Gentex Corporation (GNTX)

Gentex (NASDAQ:GNTX), a leader in automobile mirror manufacturing, reported first quarter earnings on Tuesday. Shares were up 3.7% on the heels of a revenue and earnings per share beat. The bullish trend continues for this automobile company.

In the first quarter, net sales declined to $269.5 million ($290.7 million). This number did beat analysts' estimates of $268.1 million. Net income decreased two percent to $45.4 million. Earnings per share were reported at $0.32, beating analysts' target of $0.30 by $0.02.

Automobile net sales were $263.0 million in the first quarter. This was a sharp decline from the $285.7 million from last year. Auto dimmable mirror shipments increased 8% in North America. Other net sales were $6.5 million for the quarter, an increase of 30%. This increase was due to higher shipments of dimmable aircraft windows.

The quarter was strengthened by the launch of new SmartBeam technology devices. Earnings also increased from a higher gross profit margin of 34.7% vs. last year's 34.2%. The quarter was hurt by declining sales in Europe, Japan, and Korea.

Gentex talked about 2013 guidance for several items. The company believes SmartBeam shipments will increase 10-15% in the fiscal year. Rear camera display devices are expected to decline 25-35%.

Despite this weak guidance and declines in revenue from last year, Gentex has several positives for investors going forward. Gentex did not repurchase shares in the first quarter, leaving four million shares on the current buyback program. The company also reports that 2013 will finally mark the ruling on the Kids Transportation Safety Act. The passing of this legislation would make it mandatory for automobiles to have certain mirrors and cameras to view items behind vehicles. No company benefits more from this legislation than Gentex.

In July 2012, I recommended buying shares of Gentex at a price of $15.01. Shares are up 44% since that time thanks to investors finally coming to terms with valuation. At that time, I gave four key reasons to buy shares of Gentex:

  • Three year low
  • Clear market leader
  • Dividend yield of 2.4%
  • December ruling on Kids Transportation Act

The majority of these hold true today, with the exception of the three year low prices. Gentex remains the market leader in its industry and continues to utilize new technology to change the automotive sector. Gentex raised its dividend in February to a quarterly payout of $0.14. Despite the rise in Gentex's share price, the company's yield is currently 2.6%. The ruling of the Kids Transportation Act will hopefully materialize in 2013 and could send shares on a never ending rally soon.

In that July article, I gave a price target of $25. Despite the 44% run-up in Gentex, I believe there is still 25% upside to this automobile company. That number could increase with the Kids Safety Act legislation as well. Consider going long Gentex and collecting a generous yield while waiting for the growth to materialize.

Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in GNTX over the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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