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Gentex (GNTX) Up 5.5% Since Last Earnings Report: Can It Continue?

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It has been about a month since the last earnings report for Gentex (GNTX - Free Report) . Shares have added about 5.5% in that time frame, outperforming 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 its most recent earnings report in order to get a better handle on the important catalysts.

Gentex’s Q4 Profit Swells 48.7% Y/Y

Gentex reported fourth-quarter earnings of 58 cents per share, surpassing the Zacks Consensus Estimate of 50 cents. Markedly, higher-than-expected revenues from the Automotive Products segment resulted in this outperformance. Revenues from the segment came in at $521.6 million, beating the Zacks Consensus Estimate of $470 million. Also, higher-than-expected auto-dimming mirror unit shipments contributed to the impressive results.

The bottom line also marked a 48.7% rise from the year-ago profit of 39 cents per share, thanks to improved sales, strong product mix and higher auto-dimming mirror unit shipments. This Zeeland-based automotive products supplier reported net sales of $529.9 million, outpacing the Zacks Consensus Estimate of $481 million. The top-line figure also increased 19% year over year.  

The company recorded gross margin of 40.9% for the reported quarter, higher than the year-ago quarter’s 36.5% on higher sales and cost-containment efforts implemented in the wake of COVID-19 pandemic. Importantly, it witnessed the highest gross margin in the December quarter since second-quarter 2004.

Segmental Performance

The Automotive segment’s net sales — which have the highest contribution to Gentex’s revenues — totaled $521.6 million for the fourth quarter, up 20% year over year, primarily on the back of higher auto dimming mirror shipments. For the quarter under review, auto-dimming mirror shipments in the North America market climbed 14% from the prior-year level to 3,756,000 units. Shipments also rose 14% year over year in the International market to 8,220,000 units. Total shipments rose 14% year over year to 11,976,000 units, surpassing the consensus mark of 11,108,000.

Other net sales, which include dimmable aircraft windows and fire protection products, dropped 17% from the year-ago quarter to $8.3 million. Dimmable aircraft window sales plummeted 34% year over year during the October-December period. Gentex expects dimmable aircraft window sales to continue being impacted until the recovery of the aerospace industry begins and Boeing 787 aircraft production levels get a boost.

Financial Tidbits

Total operating expenses increased 7% year over year to $54.3 million for fourth-quarter 2020 amid higher SG&A and R&D expenses. SG&A expenses flared up to $24.7 million from the year-ago quarter’s $22.1 million. Engineering and R&D expenses scaled up to $29.5 million from $28.8 million recorded in the year-ago period.

Gentex paid dividends of 12 cents per share during the quarter under review. During the December-end quarter, it repurchased 2.5 million shares of its common stock at an average price of $31.82 per share. As of Dec 31, 2020, the company had 9.4 million shares available for repurchase. During full-year 2020, Gentex returned $405.7 million to shareholders via dividends ($117.2) and stock buybacks ($288.5 million).

During fourth-quarter 2020, Gentex repaid $25 million of debt under the company's revolving credit facility. The company currently does not have any short/long-term debt. As of Dec 31, 2020, it had cash and cash equivalents of $423.4 million.

Projections

Based on the mid-January 2020 IHS Markit forecast, light vehicle production in Gentex’s primary markets is expected to soar 12% year over year in the current year. Amid the encouraging backdrop, it expects higher year-over-year revenues in 2021. The company envisions net sales in the band of $1.94-2.02 billion, indicating an increase from 2020 revenues of $1.68 billion. Gross margin is anticipated in the range of 39-40%. Capital expenditure and operating expenses are estimated within $85-$95 million and $210-$220 million, respectively. For calendar year 2022, the Zacks Rank #3 (Hold) firm expects sales growth of 4-8% year over year.

How Have Estimates Been Moving Since Then?

It turns out, fresh estimates flatlined during the past month.

VGM Scores

Currently, Gentex has an average Growth Score of C, though it is lagging a lot on the Momentum Score front with an F. Charting a somewhat similar path, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.

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

Outlook

Gentex has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.


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