Why Is Gentex (GNTX) Up 3.2% Since Last Earnings Report?

A month has gone by since the last earnings report for Gentex (GNTX). Shares have added about 3.2% in that time frame, underperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Gentex due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.

Gentex Tops on Q3 Earnings, Dims View

Gentex’s delivered third-quarter 2019 earnings per share of 44 cents, which beat the Zacks Consensus Estimate of 42 cents on higher revenues and increasing auto-dimming mirror shipments. In the year-ago quarter, the company’s earnings were 42 cents. Its net income rose to $111.9 million from $111.3 million reported in third-quarter 2018.

During the quarter under review, the company delivered net sales of $477.8 million, which nominally beat the Zacks Consensus Estimate of $477 million. Moreover, the top line grew 3.8% from the year-ago quarter’s figure of $460.3 million.

Q3 Highlights

The company recorded gross margin of 37.7% in the quarter under review, up from the year-ago quarter’s 37.6% on favorable product mix, partially offsetting tariff woes.

In the quarter, auto-dimming mirror shipments in the North America market rose 11% to 3.5 million units. In the International market, the same grew 4% to 7.3 million units. Total shipments rose 6% year over year to 10.8 million units.

Operating expenses rose 15% to $52.2 million in third-quarter 2019 from $45.6 million in third-quarter 2018. Higher engineering and R&D expenses along with increased SG&A costs drove total costs. Engineering and R&D expenses rose 9.2% to $29.4 million in third-quarter 2019 from 26.9 million in third-quarter 2018. SG&A expenses rose 21.9% to $22.8 million from $18.7 million in the year ago quarter.

Share Repurchase & Cash Position

During the quarter under review, the company repurchased approximately 3.6 million shares of its common stock at $27.07 per share. As of Sep 30, 2019, Gentex had around 22.5 million shares remaining for repurchase. The company intends to continue to repurchase additional shares of its common stock to support the capital-allocation strategy.

Gentex had cash and cash equivalents of $260.1 million as of Sep 30, 2019, compared with $217 million as of Dec 31, 2018.

Outlook Trimmed

Amid the forecast of lower light-vehicle production in North America, Europe, China and other key markets, the company trimmed its outlook for 2019. The UAW-General Motors strike is also likely to weigh on the company’s upcoming results, leading to a revenue decline.

The company revised its guidance downward for 2019. It now expects revenues of $1.84-$1.87 billion versus $1.87-$1.90 billion mentioned earlier. Gross margin is anticipated to be 36.6-37.0% for the current year compared with previously mentioned 36.5%-37.5%. Operating expenses are now projected at $198-$200 million compared with $195-$200 million stated earlier. Capex forecast remained unchanged for 2019.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in fresh estimates. The consensus estimate has shifted -12.8% due to these changes.

VGM Scores

At this time, Gentex has an average Growth Score of C, however its Momentum Score is doing a bit better with a B. Charting a somewhat similar path, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Gentex has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.

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