Gentherm: In the Driver's Seat

11/21/2013 7:00 am EST


Tom Bishop

Founder, BI Research

I owe my latest featured stock recommendation to my wife; she is almost as exited about the climate controlled seating (CSS) as she is about her new car, jests Tom Bishop, small-cap expert and editor of BI Research.

Gentherm (THRM) is primarily a second tier supplier to automobile and truck manufacturers for thermal seat comfort systems, heated and cooled cup holders, and cable systems.

This company is all about keeping you comfortable in your car in hot or cold weather. I would venture to say that once you have a car so equipped…you'll likely never go back. Hey, you only go around once in life, you might as well be as comfortable as possible.

Basically, the company convinces auto manufacturers of the advantages, including profitability, of including climate controlled seats in their vehicles.

They then hook up with the seat manufacturers who design Gentherm's products into future seat designs and become Gentherm's direct customers.

Its products then go into cars made by GM, Volkswagen, Ford, Hyundai, Fiat, BMW, Renault/Nissan, Toyota, Honda, and others.

More sexy, the company is in the late stages of work on a project in a consortium with other big players like Ford and BMW, to recover waste heat from the exhaust system that is used to generate electricity, to power various systems in the vehicle.

It turns out only 30% of the energy from combustion goes into powering the vehicle down the road, the rest mostly goes out the exhaust, so this is a huge and exciting opportunity that they are pretty far along on...though revenues are likely still down the road a piece.

Q3 saw revenues increase 21% to $171 million, which was a quarterly record (as was the $160 million in Q2), resulting in strong gross margin of 26.8%.

This resulted from new program launches in the Cadillac CTX, the Hyundai Sonata (N.A.), and additional volumes from 2012 program launches. This generated adjusted EPS of $.25 versus last year's $.08, beating estimates of $.21.

For the full year, EPS is forecasted to grow 120% to $.88, followed by 48% growth to $1.30 in 2014. Of note, 2014's consensus just rocketed ahead (as did the stock), from $1.13 to $1.30 in the wake of the big $.04 Q3 earnings beat.

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