KeyBanc Upgrades Gentex (GNTX) to Buy

KeyBanc upgraded Gentex (NASDAQ: GNTX) from Hold to Buy with a price target of $43. Analyst Brett D. Hoselton thinks upward EPS revisions are likely.

" Following a non-deal road show with the management of Gentex Corporation and further analysis, we are upgrading the shares to a BUY rating and are introducing a $43 price target based on our beliefs that: 1) a revenue CAGR of 12.5% appears reasonable as a base case through 2016 with primary catalysts being Exterior Mirror, Homelink and Camera revenue, and we think an additional 5% of EPS upside in 2016 is achievable should the revenue CAGR accelerate to 15%," said Hoselton.

"2) EBIT margins appear poised to expand as an EBIT contribution margin consistent at 35% or higher appears realistic driven by operating leverage as well as favorable product mix as higher growth segments generate above-average margins, and we think an additional 4% of EPS upside in 2016 is achievable should contribution margins reach 40%," continued the analyst.

"3) share repurchase is possible with a $175 million net cash position and annual free cash flow generation after dividends reaching ~$200 million, and with zero buyback baked into expectations, we estimate 3% of EPS upside in 2016 is achievable if the Company allocates only half of the free cash flow to buying back stock; and 4) our price target assumes a 17x P/E multiple on our 2016 estimate, which is in line with the current multiple, and multiple expansion is possible, driven by a combination of accelerating revenue growth, margin expansion and shareholder-friendly capital deployment," he added.

For an analyst ratings summary and ratings history on Gentex click here. For more ratings news on Gentex click here.

Shares of Gentex closed at $36.66 yesterday.

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