Company Reports

Gentex reported first-quarter 2024 results that show its chip shortage recovery and gross margin efforts are on track, giving us no reason to change our fair value estimate. Management also maintained its full-year guidance and 2025 revenue guidance of $2.65 billion to $2.75 billion. Diluted EPS of $0.47 matched the LSEG consensus and rose 11.9% year over year. As is its custom, Gentex’s revenue growth outperformed industry production changes in its core markets of North America, Europe, Japan, and Korea. Light vehicle production in these regions fell by a combined 3%, while revenue rose 7.2% to an all-time quarterly record of $590.2 million, though that still missed LSEG consensus of $598 million. Gentex’s outperformance comes from its high technology-contented mirrors and continued growth globally from exterior auto-dimming mirrors. We see record revenue in 2024 and 2025 is possible if the world avoids recessions. The company repurchased 1.2 million shares in the quarter for $43 million, and we expect more buybacks this year.

Gentex manufactures auto-dimming rear- and side-view mirrors that use electrochromic technology. These mirrors automatically darken to eliminate headlight glare for drivers and have many other applications. With over 2,200 patents worldwide, some valid through 2048, and nearly 90% market share, up from 77% in 2003, Gentex has a narrow economic moat it should be able to protect for a long time, in our opinion.

Gentex’s stock rose by over 7% on Jan. 26 after the firm reported a 35.1% increase in fourth-quarter diluted earnings per share to $0.50, which beat the $0.44 Refinitiv consensus. We are not changing our fair value estimate but will review all modeling assumptions after we roll our model forward for the 10-K. With the auto industry recovering from the chip shortage and Gentex’s continued ability to grow revenue at a far higher rate than light-vehicle production in its core markets, we think the firm can reach its 2024 revenue guidance of $2.45 billion to $2.55 billion and its gross margin target of 35%-36% at the end of 2024. Guidance for 2025 is $2.7 billion at the midpoint.

Gentex's third-quarter showed efforts to improve gross margin are paying off as volumes recover and give us no reason to change our fair value estimate. We believe the stock's 7.4% selloff on Oct. 27 is not warranted and was probably exacerbated by the Dow Jones Industrial Average's nearly 400-point decline that day or heavy selling in GM and Ford. Diluted EPS of $0.45 rose by 45.2% year over year and beat the $0.44 Refinitiv consensus, while unit volumes and revenue growth rates once again easily outgrew industry light vehicle production by 500 and 1,200 basis points, respectively. Management confirmed guidance for 2024 revenue of $2.45 billion to $2.55 billion and kept 2023 revenue and gross margin guidance in place.

Gentex’s management has long said it needed more volume as the chip shortage ravaged production, and second-quarter results show why. Mirror unit shipments rose 20.8% year over year to a quarterly record of 12.9 million, with double-digit growth for both interior and exterior mirrors. This led to revenue growing 25.9% to a record $583.5 million, which beat Refinitiv consensus, as did diluted EPS, which rose 51.6% to $0.47 versus $0.41 consensus. We are raising our fair value estimate to $38 per share from $35 to reflect higher than previously modeled global light-vehicle production and higher content per vehicle, given that 2023 is progressing above our prior expectation, as well as management raising its guidance. Gentex now expects 2023 revenue of $2.2 billion-$2.3 billion, up from about $2.2 billion, while its gross margin outlook is now 32.5%-33%, up from 32%-33%. 2024 revenue guidance is now $2.45 billion-$2.55 billion, about an 11% increase at the midpoint versus 2023. Previous 2024 guidance was for about a 10% increase from $2.2 billion.

Gentex manufactures auto-dimming rear- and side-view mirrors that use electrochromic technology. These mirrors automatically darken to eliminate headlight glare for drivers and have many other applications. With about 2,000 patents worldwide, some valid through 2047, and nearly 90% market share, up from 77% in 2003, Gentex has a narrow economic moat it should be able to protect for a long time, in our opinion.

Gentex’s first-quarter results indicate the firm’s targeted gross margin recovery to 35%-36% by the end of 2024 is on track, and we are leaving our fair value estimate in place. Diluted EPS of $0.42 increased 13.5% year over year and beat the $0.37 Refinitiv consensus. We like management deploying the firm’s cash hoard to repurchase 1 million shares of stock at an average of $27.19 per share, which is below our fair value estimate. Gentex has not increased its dividend since March 2020 but does not plan to consider an increase until net income returns to prepandemic levels ($424.7 million in 2019).

Gentex manufactures auto-dimming rear- and side-view mirrors that use electrochromic technology. These mirrors automatically darken to eliminate headlight glare for drivers and have many other applications. With about 2,000 patents worldwide, some valid through 2047, and a dominant nearly 90% market share, up from 77% in 2003, Gentex has a narrow economic moat it should be able to protect for a long time, in our opinion.

Gentex’s fourth-quarter 2022 saw the auto-dimming mirror maker continue to fight rising material, labor, and freight costs, plus last minute customer production changes due to the chip shortage. Fourth-quarter EPS of $0.37 increased by 5.7% year over year but still missed the Refinitiv consensus of $0.38. Revenue rose nearly 18% on a soft comparable due to the chip shortage’s impact in 2021 but still missed consensus, sending the stock down over 2% during Jan. 27 trading. Management gave detailed 2023 guidance, and capital expenditures for 2023 and 2024 will be higher than we were modeling due to some delayed 2021 and 2022 spending, but we see no reason to change our thesis or fair value estimate. We will revisit all modeling assumptions after the 10-K is filed.

Gentex’s third quarter saw many headwinds and diluted EPS of $0.31 fell by a penny year over year and missed the Refinitiv consensus of $0.38. We see no reason to change our fair value estimate. Gross margin fell by 550 basis points to 29.8%. Management cited some improvement in supply chain issues but also said customer work schedules continue to change last minute, hourly labor is in short supply at Gentex as well as at its customers and suppliers, and shortages of advanced electronic components for advanced mirrors such as the Full Display Mirror remain a problem and cost the company 750,000 units or as much as $40 million in lost sales. This lost volume combined with higher raw material costs, previously committed annual price reductions to customers, high labor, and mix headwinds led to the gross margin decline. Gentex said mix issues from lost advanced mirror production cost the firm 150 basis points of gross margin.

Gentex manufactures auto-dimming rear- and side-view mirrors that use electrochromic technology. These mirrors automatically darken to eliminate headlight glare for drivers and have many other applications. With over 2,000 patents worldwide, some valid through 2044, and a dominant over 90% market share, up from 77% in 2003, Gentex has a narrow economic moat it should be able to protect for a long time, in our opinion.

Gentex manufactures auto-dimming rear- and side-view mirrors that use electrochromic technology. These mirrors automatically darken to eliminate headlight glare for drivers and have many other applications. With over 2,000 patents worldwide, some valid through 2044, and a dominant 91% market share, up from 77% in 2003, Gentex has a narrow economic moat it should be able to protect for a long time, in our opinion.

Gentex had a rare soft quarter, with diluted earnings per share of $0.31 missing the Refinitiv consensus of $0.38 and the stock falling around 10% on July 22. Second-quarter revenue increased 8.3% year over year to outperform a 3% decline in industry light-vehicle production across North America, Europe, Japan, Korea, and China but still came in about $75 million under management’s expectations and missed consensus by about $7.5 million. We expect volume will recover next year as the chip shortage eventually improves, and Gentex’s balance sheet to us is a fortress, so we see no reason to change our fair value estimate.

Gentex’s first-quarter results gave us no reason to change our fair value estimate. Management seems to be doing a solid job handling supply chain disruptions. Diluted EPS of $0.37 beat the Refinitiv consensus of $0.32 but fell 20% year over year. Mirror unit volume declined 7%, which was better than the 11% industry decline in light-vehicle production across Gentex’s primary markets of North America, Europe, and Japan and Korea. Higher freight costs and lower volume were somewhat offset by finding operating efficiencies, but gross margin fell 360 basis points to 34.3%, slightly below full-year guidance of 35%-36% and identical to the fourth-quarter 2021 level. Gentex did not get any help from automakers on passing along cost increases; it said those negotiations are ongoing for the rest of the year and into 2023. These negotiations are often a slow process done automaker by automaker, and the current volatile environment makes it harder to negotiate terms. We agree with management’s optimism for the chance of favorable operating leverage after 2022.

Gentex manufactures auto-dimming rear- and side-view mirrors that use electrochromic technology. These mirrors automatically darken to eliminate headlight glare for drivers and have many other applications. With over 2,000 patents worldwide, some valid through 2044, and a dominant 91% market share, up from 77% in 2003, Gentex has a narrow economic moat it should be able to protect for a long time, in our opinion.

Gentex’s fourth-quarter 2021 saw the chip shortage finally directly prevent the company from making all the units it should, especially on more advanced feature mirrors such as the full display mirror. For most of 2021, Gentex’s production suffered because customers shut their lines down for other supplier shortages but in a rarity, Gentex could not keep its lines moving in the fourth quarter. The shortage led to Gentex’s mirror volume falling 18.1% year over year for the quarter versus a 20% light vehicle production decline in the firm’s key markets of North America, Europe, Japan, and Korea. We are not changing our fair value estimate, but we will reassess all valuation inputs when we roll our model forward a year after the 10-K is filed.

Gentex manufactures auto-dimming rear- and side-view mirrors that use electrochromic technology. These mirrors automatically darken to eliminate headlight glare for drivers and have many other applications. With over 1,700 patents worldwide, some valid through 2044, and a dominant 94% market share, up from 77% in 2003, Gentex has a narrow economic moat it should be able to protect for a long time, in our opinion.

We see no reason to change our fair value estimate for Gentex, despite the chip shortage hurting third-quarter results, as we believe the company’s long-term growth prospects remain in good shape. We also think its cash-rich, debt-free balance sheet enables Gentex to keep making acquisitions or buy back more stock. Third-quarter buybacks totaled $90.6 million at $32 per share. Diluted EPS of $0.32 missed the Refinitiv consensus of $0.38, and revenue fell nearly 16% year over year to $399.6 million, missing consensus of $434.5 million. Management said the supply chain shortages cost Gentex about 2.5 million-3 million units of production, which is about $125 million in sales. Electronics supply shortages got significantly worse in the third quarter; CEO Steve Downing on the earnings call said that this will continue for several more quarters and that shortages have not bottomed out yet. Downing did tell us that things should improve in the latter part of 2022, which we find reasonable.

Gentex’s second-quarter results saw significant headwinds from lost production due to parts shortages impacting the auto industry, but we see no reason to change our fair value estimate. Revenue increased by 86% year over year thanks to a soft comparable with the pandemic in 2020, but sales fell by nearly 9% versus second-quarter 2019. Gentex shipped about 2 million less units than it expected at the start of the quarter, which caused diluted EPS of $0.36 to miss the Refinitiv consensus of $0.45.

Gentex’s first-quarter diluted EPS of $0.46 rose 28% year over year but still missed the Refinitiv consensus of $0.49, as did the company’s 7% revenue growth. We are leaving our fair value estimate in place as we consider the earnings miss to be the result of $45 million in lost revenue from the global semiconductor shortage rather than a problem with Gentex’s execution or products. We are encouraged to see management leave 2021 guidance in place but also raise 2022 revenue guidance to 8%-13% growth from 2021’s guided $1.94 billion-$2.02 billion. Previous 2022 guidance was for a 4%-8% increase from 2021. We think this guidance change is reasonable as Gentex’s revenue growth typically outperforms market production growth. In the first quarter, Gentex’s 7% revenue growth easily outperformed a 2% fall in vehicle production across North America, Europe, Japan, and Korea. Furthermore, we think low interest rates and two years of supply chain problems combined with strong consumer demand for new vehicles suggests 2022 could be a strong year.