GTX Stock Overview
Garrett Motion Inc., together with its subsidiaries, designs, manufactures, and sells turbocharger and electric-boosting technologies for light and commercial vehicle original equipment manufacturers worldwide.
Garrett Motion Inc. Competitors
Price History & Performance
|Historical stock prices|
|Current Share Price||US$5.65|
|52 Week High||US$8.59|
|52 Week Low||US$5.61|
|1 Month Change||-17.76%|
|3 Month Change||-29.81%|
|1 Year Change||-22.39%|
|3 Year Change||-38.65%|
|5 Year Change||n/a|
|Change since IPO||-70.54%|
Recent News & Updates
Garrett Motion: Cheap Despite Long-Term Headwinds
Summary Garrett Motion is the market leader with ~32% volume share and ~36% value share in the $10 billion global turbocharger industry. The company looks cheap at ~6 to ~7 times its expected earnings in 2022. Garrett continues to demonstrate strong earnings power despite a current vehicle production slump. The growing number of battery electric vehicles in the global vehicle production mix threatens Garrett’s long-term profitability. Introduction Garrett Motion Inc. (GTX) is a leading supplier of turbochargers for light and commercial vehicle original equipment manufacturers ("OEMs") as well as the global aftermarket. In short, a turbocharger is a power-boosting automotive part that improves engine performance by using the exhaust gases from the engine to push more air back into it. That is a very relevant technology given today's environment that has made OEMs subject to extremely stringent vehicle emissions and fuel economy requirements. Generally, the best fuel economy tends to be found in a smaller engine because it has less fuel to burn to produce power. However, a vehicle equipped with a small engine typically lacks the same high speed and acceleration compared to a larger engine. So, if a small engine wants to reach higher speeds, it must work extra hard, resulting in increased fuel consumption and reduced fuel economy. But by adding a turbocharger, the OEMs can use a smaller engine with better fuel economy and exhaust emissions but with the power of a bigger engine. Even though OEMs use turbochargers as key enablers for meeting the emissions and fuel economy standards, there is a catch; a turbocharger only works in vehicles equipped with an internal combustion engine. As seen over the last several years, policymakers have made huge efforts to push the adoption of electric vehicles - especially battery electric vehicles - thereby threatening the long-term demand for turbochargers. At the current price of between ~6 to ~7 times expected earnings - based on the fiscal year 2022 guidance from Garrett's management - it appears that the market prices GTX as if the company is soon to be ancient history. That may be too pessimistic! The turbocharger industry is likely to grow in the near term In 2021, ~43 million turbochargers were sold globally, totaling a market value of ~$10 billion. These include turbochargers for new light and commercial vehicles as well as for replacement use in the aftermarket. However, turbochargers for new light and commercial vehicles represented the vast majority of the total volume. In 2021, this segment was dominated by light vehicles ("LVs"), accounting for 84% of the total volume, while the remaining 16% were commercial vehicles. According to leading industry information providers, the global turbocharger industry is expected to increase to ~49 million units in 2026. While forecasts tell you nothing about the future, the probability that the global turbocharger volume is higher than 43 million units in 2026 seems higher than the probability of fewer than 43 million units in 2026. The market penetration of light vehicles with a turbocharger has increased from ~47% in 2017 to ~51% in 2020. Despite an increased turbocharger penetration, the volume has declined by ~6 million units (or 12.2%) from ~49 million units in 2017 to ~43 million units in 2021. The graphic below illustrates the main reason for this decline: Based on data taken from OICA The graphic shows a decline in total vehicle production from ~97.3 million units in 2017 to ~80.1 million in 2021. That equals a ~17.2 million decline in total units or ~17.7%. The decline is mainly caused by the drop in the number of light vehicles produced, which decreased from ~95.1 million units in 2017 to ~77.1 million units in 2021 due to COVID-19 and the current chip shortages. This production decline has naturally reduced the demand for auto parts, including turbochargers. All other things being equal, once the chip shortage subsides, it would not be unlikely that an increase in the production of light vehicles could push vehicle production toward those achieved in 2019. Particularly considering the pent-up demand that has been built in recent years. In such a scenario, the production of light vehicles would increase by, say, ~10 million units. Assuming a 50% penetration rate, the demand for turbochargers would increase by 5 million units, totaling 48 million units. Garrett is positioned to capture unit volume Garrett's competitive advantages combined with the nature of the turbocharger industry, position the company well to capture more business - especially in a scenario with growing turbocharger volume. In general, the automotive supplier industry is characterized by a "three-tier system." Tier 3 suppliers sell their products to Tier 2 suppliers which in turn sell their products to Tier 1 suppliers like Garrett. Tier 1 suppliers then sell their products to the OEMs. Even though being a Tier 1 supplier isn't a competitive advantage by itself, the turbocharger industry has some advantageous characteristics compared to many other Tier 1 industries. Because the turbocharger is part of the engine, Garrett is able to engage with the OEMs in the early stages of a new vehicle model development which typically takes three to five years. Therefore, Garrett serves more like a strategic partner, co-developing together with the OEMs, rather than just being a "build-to-print supplier." Combining that with the fact that there is only one supplier of turbochargers per engine creates high switching costs because it is quite troublesome for OEMs to change their supplier in the middle of a model cycle. In 2021, Garrett sold ~13.7 million turbochargers. This indicates a share of unit sales of ~32% based on the total market volume of 43 million units. Additionally, Garrett's revenue of $3.633 billion, indicates a market share by value of ~36%. Garrett is the market leader in both value and volume which gives the company significant scale advantages compared to its competitors. That is further strengthened by high turnover and low-cost manufacturing, providing Garrett with the most advantageous conditions for additional growth by being in the most favorable position when bidding for new contracts. New contract wins, however, are not the only way for Garrett to capture unit volume. Its current contracts expose Garrett to the volume fluctuations of specific vehicle models. If Ford's F-150 is equipped with a GTX turbocharger, then Garrett's contract revenue relies on how many F-150s, Ford produces. In other words; when the current chip shortage improves, Garrett should also experience additional growth from its current contracts. The current price looks undervalued In the fiscal year 2022, Garrett's management expects net sales of $3.5 billion to $3.7 billion, adjusted EBITDA of $530 million to $590 million, and net income of $290 million to $335 million. Including an almost inevitable conversion of ~248 million Series A Preferred Stock into common shares, the number of diluted shares outstanding will be ~313 million. The preferreds automatically convert on or after April 30, 2023, if: Series B preferreds are less than or equal to $125 million. The stock price exceeds ~$7.88. The EBITDA for the last twelve months is greater than or equal to $600 million for two consecutive quarters. Using the ~313 million share count implies an EPS between $0.93 and $1.07. Compared to the current share price of ~$6.60, this equals a P/E of ~6 to ~7. Garrett's guidance for the fiscal year 2022 rests on an essential assumption; A global light vehicle production of ~78 million. This is only slightly higher than last year's production of 77.1 million LVs but significantly lower than the 8-year average of ~87 million LVs. A return to a higher production environment would make Garrett even cheaper. Dividing Garrett's $3.633 billion FY21 revenue by its ~13.7 million unit volume suggests a $265 unit price. While this unit price calculation may be too simplistic, dividing the total $10 billion value of the turbocharger industry by its 43 million unit volume suggests a ~$232 unit price which may imply that the average unit price is around that ballpark. In a "return to the 8-year average production" scenario of ~87 million LVs, the LV production would need to increase by 9 million vehicles from the 78 million assumption that Garrett's management provided in its 2022 guidance. Assuming a continued turbocharger penetration rate of ~50% would require 4.5 million additional turbochargers. Considering Garrett's market share of unit sales of ~32%, the company would capture 1.44 million of these additional units. That would yield ~$334 million in additional revenue when using an average unit price of $232. The graphic below illustrates what Garrett's earnings could look like in such a scenario: Author's own estimates Adding the $334 million in additional revenue to the $3.6 billion - which is the midpoint of Garrett's revenue guidance for 2022 - increases the revenue to $3.934 billion. This would yield an EBITDA of $669 million. The 17% EBITDA margin should be achievable - at least compared to its past EBITDA margins that ranged between 18%-20% pre-COVID. The company should spend ~$100 million on CapEx - which is consistent with its guidance - and ~$50 million in interest on its ~$1.14 billion debt. Therefore, in a more "normalized" environment, Garrett could earn closer to $400 million which implies a P/E of ~5. Risks from EVs One of the main industry-specific risks for Garrett is the risk from electric vehicles. Even if the total vehicle production increases in the coming years, the big unknown is what the production mix will look like. Although the dominance of electric vehicles on global vehicle production seems inevitable, a fast shift could quickly erode Garrett's business. Typically, electric vehicles consist of both battery electric vehicles ("BEVs") as well as various types of hybrids. The penetration of BEVs poses the biggest risk because of the complete lack of an internal combustion engine. Therefore, BEVs do not demand any of Garrett's products. On the other hand, the turbocharger industry does not see the increasing production of hybrids as a risk. Instead, it is expecting increasing turbo penetration rates in this segment. Even though the battery in hybrids serves as a booster, making the traditional turbocharger redundant, they may still use electric turbochargers. The electric turbocharger serves the same purpose in hybrids as a traditional turbocharger does in vehicles with an internal combustion engine; to enhance performance and fuel economy as well as reduce exhaust emissions.
Garrett Motion: A True Value Growth Play
Summary Garret Motion redeemed all of its Series B stock in June, much earlier than expected. The company has recently upped its guidance, and given the current progress, it is on its way to achieving it despite the macroeconomic turmoil. Its long-term topline is intact, with most of its 2023 and 2024 revenue already contracted, while its margins show resilience. The stock is undervalued despite a 33% gain since May, with significant improvements to its balance sheet. Investment Thesis Garrett Motion Inc. (GTX) is up over 34% since I last covered it, outperforming the market by 30%. The company has come a long way since emerging from its bankruptcy in 2021 and boasts exceptional progress. GTX data by YCharts The company's Q2 reports appear to be underwhelming because of a stagnant topline, affected by macroeconomic factors, especially the weak Euro situation. The company is showing good progress in deleveraging its balance sheet with the early redemption of its Series B stock. I am bullish on the stock as it is still undervalued despite promising growth prospects. Topline Prospects Are Intact Garret Motion's revenue suffered a YoY decline in the MRQ because of macroeconomic headwinds, including depressed volumes due to the global semiconductor shortage, China's lockdowns, currency translation loss, and supply chain constraints. The company has a duopoly along with BorgWarner (BWA), which significantly improves its pricing power, facilitating the company in offsetting these setbacks by inflation pass-through. GTX Investors' Presentation The global chip shortage is a divisive subject among experts, with JP Morgan (JPM) anticipating the situation to be resolved by the end of the year. In contrast, Forrester expects the issue to be "softened" but dragged through 2023. Concurrently, the company has said that it is already starting to see some improvements in the lags caused by the chip shortage, which should be seen in Q3 results. Meanwhile, China's Zero COVID Policy signals that it prioritizes COVID control over economic growth, resulting in various industries suffering from stunted or halted growth. This has resulted in the country facing a 2.6% GDP growth decline in Q2 2022, but with Shanghai's lockdown ending in mid-quarter, the company has started to see operational improvements. Additionally, since the company's 51% of H1 2022 revenue is generated from Europe, the weakening of the euro has translated to a material loss of revenue for the company, including an unfavorable currency impact of $73 million in the MRQ. EUR/USD YTD average rate is $1.0758, expected to deteriorate further, averaging about $0.983 for 2022. These issues indicate that the macroeconomic headwinds will stay for at least the next 2 quarters. Still, they have eased enough to exhibit quantifiable improvements in the upcoming reports. The long-term topline growth prognosis remains positive since the industry outlook is intact, and the company has already contracted more than 94% of its 2023 and 2024 revenue. The company has retained its market share while investing in new technology beyond turbo, with 50% of its R&D expense to diversify its future revenue streams. A Closer Look At 2022 Guidance GTX Q2 Earnings Presentation Despite the setbacks, the company's annual outlook has improved compared to April, when it lowered it from February, bolstering the aforementioned points. With net sales of $1.7 billion, flat at constant currency, net income of $96 million, Adjusted EBITDA of $284 million, OCF of $177 million, and Adjusted FCF of $61 million, the company appears to be proceeding well toward achieving its overall guidance figures. Guidance vs. Actual (Million USD) 2022 Guidance Midpoint H1'22 Results Percent Accomplishment Net Sales 3,600 1760 49% Sales Growth (ex. currency translation) 0.5% -9% Net Income 312.5 73 55.4% Adjusted EBITDA 560 284 51% Net Cash from Operations 455 177 39% Adjusted Free Cash Flow 380 61 16% Assumed EUR/USD rate vs. Average rate 1.04 1.07 103% Assuming that the company achieves its sales growth target of 0.5%, in light of its quarterly revenue beating the estimated global light vehicle production by 6%, and maintains its net income margin of 10.5% for H2, it will generate annual revenue of $3.651 billion, and exceed its annual net income guidance by generating $198.6 million in H2, and $372 million annually. Given the weakening of the Euro and assuming an average 2022 EUR/USD rate at parity and a consistent net income to Adj. EBITDA conversion rate to account for the macroeconomic factors, the annual adjusted EBITDA is likely to be middle of the guidance at $548 million. The company has generated $313 million in operating cash flows in the last 3 quarters at about 12% of revenue on average. If the company can maintain this pace, it will generate $438 million in cash from operations, close to its guidance midpoint. The EBITDA margin expansion is expected because GTX maintained its sequential adjusted EBITDA margin at over 16% despite a volumetric sales decline. The significant recent debt reduction is expected to push the FCF margins higher. Following the company's $75 million net adjustments to the OCF, the adjusted FCF is expected to be $363 million. Millions USD 2022 Guidance 2022 (Est.) 2021 YoY Growth Variance from Guidance Net Sales 3,600 3,651 3,633 0.50% 1.42% Net Income 312.5 372 495 (24.93%) 18.91% Adjusted EBITDA 560 548 607 (9.70%) (2.12%) Net Cash from Operations 455 438 -310 - (3.71%) Adjusted Free Cash Flow 380 363 367 (1.09%) (4.47%) *Note that negative variance is from the midpoint, making the numbers in the expected range. Valuation In line with our previous estimate, the company completed an early final redemption of its outstanding Series B Preferred Stock, redeeming over 271.6 million shares for an aggregate price of $212 million. The significant debt reduction has reduced its net debt-to-EBITDA ratio from 2.33x to 1.87x in the MRQ.
Garrett Motion Q2 Earnings Preview
Garrett Motion (NASDAQ:GTX) is scheduled to announce Q2 earnings results on Thursday, July 28th, before market open. EPS Estimate is $0.24 (-86.1% Y/Y) and the consensus Revenue Estimate is $880M (-5.9% Y/Y). has beaten EPS estimates 100% of the time and has beaten revenue estimates 100% of the time.
Garret Motion Is Moving In The Right Direction
The undervaluation persists but the company is going in the right direction. The capital structure clean up is progressing and ahead of schedule. The current headwinds will not last forever and will fade naturally.
|GTX||US Auto Components||US Market|
Return vs Industry: GTX exceeded the US Auto Components industry which returned -40.6% over the past year.
Return vs Market: GTX matched the US Market which returned -23.2% over the past year.
|GTX Average Weekly Movement||6.6%|
|Auto Components Industry Average Movement||7.4%|
|Market Average Movement||6.9%|
|10% most volatile stocks in US Market||15.6%|
|10% least volatile stocks in US Market||2.8%|
Stable Share Price: GTX is not significantly more volatile than the rest of US stocks over the past 3 months, typically moving +/- 7% a week.
Volatility Over Time: GTX's weekly volatility (7%) has been stable over the past year.
About the Company
Garrett Motion Inc., together with its subsidiaries, designs, manufactures, and sells turbocharger and electric-boosting technologies for light and commercial vehicle original equipment manufacturers worldwide. The company offers light vehicle gasoline and diesel, and commercial vehicle turbochargers; and provides automotive software solutions. It offers its products in the aftermarket through distributors.
Garrett Motion Inc. Fundamentals Summary
|GTX fundamental statistics|
Is GTX overvalued?See Fair Value and valuation analysis
Earnings & Revenue
|GTX income statement (TTM)|
|Cost of Revenue||US$2.79b|
Last Reported Earnings
Jun 30, 2022
Next Earnings Date
|Earnings per share (EPS)||0.12|
|Net Profit Margin||0.23%|
How did GTX perform over the long term?See historical performance and comparison