New Technologies Unveiled At CES Will Fuel Future Success

Key Takeaways

• New products and technology, showcased at CES 2025, are key to driving long-term revenue and expected growth above primary markets.
  
• Strategic acquisition of VOXX enhances growth and operational efficiencies, benefiting earnings through cost synergies and expanded offerings.
  
• Economic conditions and shifts to lower-cost vehicles could limit Gentex's revenue growth despite lowered tax rates and efforts to manage costs.

Catalysts

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.

• Gentex is targeting revenue growth for 2025 that suggests a 7% outgrowth versus primary markets, driven by launching new products and technology, expected to impact revenue positively.
  
• The company aims to achieve a gross margin target of approximately 35% by the end of 2025 through purchasing cost reductions and improvements in product mix and operational efficiencies, impacting net margins.
  
• Significant focus on product roadmaps and new technology developments as showcased at the 2025 Consumer Electronics Show (CES) is expected to drive long-term revenue growth.
  
• A reduction in the rate of growth of operating expenses is planned for 2025, improving net income as the company believes current engineering spend will support ongoing growth initiatives.
  
• The company's strategic acquisition of VOXX International Corporation is anticipated to enhance growth potential and operational efficiencies, likely benefiting earnings through cost synergies and expanded product offerings.

Gentex Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Gentex's revenue will grow by 8.5% annually over the next 3 years.
• Analysts assume that profit margins will increase from 17.2% today to 17.6% in 3 years time.
• Analysts expect earnings to reach $520.5 million (and earnings per share of $2.5) by about March 2028, up from $398.9 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 16.2x on those 2028 earnings, up from 14.5x today. This future PE is lower than the current PE for the US Auto Components industry at 16.9x.
• Analysts expect the number of shares outstanding to decline by 1.73% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.07%, as per the Simply Wall St company report.

Gentex Future Earnings Per Share Growth

Risks

• Gentex experienced a decline in net sales by 8% in the fourth quarter of 2024, driven by decreased light vehicle production in key markets, which impacts revenue and earnings.
  
• The company's gross margin dropped from 34.5% to 32.5% in Q4 2024 due to lower-than-expected sales and product mix issues, affecting net margins.
  
• Operating expenses increased by 22% in Q4 2024, primarily due to increased staffing and engineering fees, leading to higher costs and reduced net income.
  
• Gentex's effective tax rate decreased, but net income still fell from $116.9 million to $87.7 million year-over-year in Q4, impacting overall earnings.
  
• The uncertainty in vehicle sales driven by economic conditions and shifts towards lower-cost vehicles could hinder Gentex's ability to achieve its forecasted revenue growth targets, affecting future revenue potential.

Valuation

• The analysts have a consensus price target of $31.882 for Gentex based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $43.0, and the most bearish reporting a price target of just $27.0.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $3.0 billion, earnings will come to $520.5 million, and it would be trading on a PE ratio of 16.2x, assuming you use a discount rate of 7.1%.
  
• Given the current share price of $25.39, the analyst price target of $31.88 is 20.4% higher.
  
• 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.