Tariff Challenges And VOXX Merger Will Bring Mixed Results

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AnalystLowTarget
AnalystLowTarget
Not Invested
Consensus Narrative from 9 Analysts
Published
27 Apr 25
Updated
23 Jul 25
AnalystLowTarget's Fair Value
US$21.00
25.1% overvalued intrinsic discount
23 Jul
US$26.28
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1Y
-12.0%
7D
-4.2%

Author's Valuation

US$21.0

25.1% overvalued intrinsic discount

AnalystLowTarget Fair Value

Last Update07 May 25

Key Takeaways

  • U.S.-China trade tariffs and declining vehicle production threaten Gentex's revenue and growth in key markets.
  • Rising expenses and VOXX merger-related risks might hinder earnings efficiency and impact anticipated revenue.
  • Gentex's strategic moves, including the VOXX merger, innovative product launches, and share repurchases, position it for strengthened market presence and shareholder value enhancement.

Catalysts

About Gentex
    Designs, develops, manufactures, markets, and supplies digital vision, connected car, dimmable glass, and fire protection products in the United States, China, Germany, Japan, Mexico, the Republic of Korea, and internationally.
What are the underlying business or industry changes driving this perspective?
  • The severe impact of tariffs, particularly those linked to the U.S.-China trade war, is expected to depress Gentex's sales into the China market, significantly restricting revenue growth by approximately $100 million from initial forecasts.
  • The current and anticipated decline in global light vehicle production, especially a projected 11% drop in North America, poses a downward pressure on Gentex's revenue prospects and growth expectations in its primary markets.
  • Weakness in trim-mix within light vehicle production has already led to a decrease in net sales and a degradation of gross margins, indicating a potential for ongoing negative impact on revenue and net profits.
  • Rising operating expenses and severance-related costs point to margin pressures, suggesting Gentex might struggle to maintain its historical levels of earnings efficiency.
  • The VOXX merger, while potentially beneficial in the long term, brings immediate risks due to expected cost increases from tariffs, which could disrupt anticipated revenue integration and put earnings under additional stress.

Gentex Earnings and Revenue Growth

Gentex Future Earnings and Revenue Growth

Assumptions

How have these above catalysts been quantified?
  • This narrative explores a more pessimistic perspective on Gentex compared to the consensus, based on a Fair Value that aligns with the bearish cohort of analysts.
  • The bearish analysts are assuming Gentex's revenue will grow by 5.6% annually over the next 3 years.
  • The bearish analysts assume that profit margins will shrink from 16.8% today to 14.5% in 3 years time.
  • The bearish analysts expect earnings to reach $393.2 million (and earnings per share of $1.91) by about July 2028, up from $385.8 million today. The analysts are largely in agreement about this estimate.
  • In order for the above numbers to justify the price target of the more bearish analyst cohort, the company would need to trade at a PE ratio of 13.7x on those 2028 earnings, down from 13.9x today. This future PE is lower than the current PE for the US Auto Components industry at 14.9x.
  • Analysts expect the number of shares outstanding to decline by 2.35% per year for the next 3 years.
  • To value all of this in today's terms, we will use a discount rate of 7.13%, as per the Simply Wall St company report.

Gentex Future Earnings Per Share Growth

Gentex Future Earnings Per Share Growth

Risks

What could happen that would invalidate this narrative?
  • Gentex's commitment to share repurchases demonstrates confidence in its financials and its potential to positively impact shareholder value through earnings per share growth.
  • The VOXX merger is expected to contribute significantly, with between $325 million and $375 million annually, excluding tariff impacts, which could bolster Gentex's revenue over time.
  • Despite tariff challenges, Gentex is proactive in securing customer agreements which could stabilize or potentially mitigate expected adverse financial effects on margins.
  • The expansion in innovation and product launches, such as driver monitoring systems and Full Display Mirror, indicates potential growth in revenue and market share.
  • The company has a strong balance sheet, with significant cash reserves, allowing for flexibility in navigating economic downturns or investing in growth opportunities.

Valuation

How have all the factors above been brought together to estimate a fair value?
  • The assumed bearish price target for Gentex is $21.0, which represents the lowest price target estimate amongst analysts. This valuation is based on what can be assumed as the expectations of Gentex's future earnings growth, profit margins and other risk factors from analysts on the more bearish end of the spectrum.
  • However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $42.0, and the most bearish reporting a price target of just $21.0.
  • In order for you to agree with the bearish analysts, you'd need to believe that by 2028, revenues will be $2.7 billion, earnings will come to $393.2 million, and it would be trading on a PE ratio of 13.7x, assuming you use a discount rate of 7.1%.
  • Given the current share price of $23.86, the bearish analyst price target of $21.0 is 13.6% lower. Despite analysts expecting the underlying buisness to improve, they seem to believe the market's expectations are too high.
  • We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.

How well do narratives help inform your perspective?

Disclaimer

AnalystLowTarget is a tool utilizing a Large Language Model (LLM) that ingests data on consensus price targets, forecasted revenue and earnings figures, as well as the transcripts of earnings calls to produce qualitative analysis. The narratives produced by AnalystLowTarget are general in nature and are based solely on analyst data and publicly-available material published by the respective companies. These scenarios are not indicative of the company's future performance and are exploratory in nature. Simply Wall St has no position in the company(s) mentioned. Simply Wall St may provide the securities issuer or related entities with website advertising services for a fee, on an arm's length basis. These relationships have no impact on the way we conduct our business, the content we host, or how our content is served to users. The price targets and estimates used are consensus data, and do not constitute a recommendation to buy or sell any stock, and they do not take account of your objectives, or your financial situation. Note that AnalystLowTarget's analysis may not factor in the latest price-sensitive company announcements or qualitative material.

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