Harman: A Sound Investment
09/22/2015 8:00 am EST
Our latest Focus Stock—which carries S&P Capital IQ’s highest investment recommendation of 5-Stars or Strong Buy—makes and markets high-fidelity audio products and electronic system, notes Efraim Levy in S&P’s The Outlook.
Based in Stamford, CT, Harman International Industries (HAR) targets original equipment manufacturers, consumer, and professional markets.
Our recommendation is based on expectations that HAR will benefit from higher demand for its infotainment and other technology products and that the stock has attractive capital appreciation and total return potential.
HAR designs systems to be installed as original equipment by automotive manufacturers as well as a wide range of high quality loudspeakers and electronics for home, multimedia, and mobile applications.
Demand in Europe should show further progress from exceptionally low levels seen in FY 2014, despite continued macroeconomic weakness.
Further, we estimate market share gains and growth in emerging markets, despite recent stock market volatility and concerns about the pace of China economic growth.
We believe increasing in-vehicle take rate for infotainment bode well for future sales growth.
In our opinion, recent contract wins with Toyota Motors (TM) and General Motors (GM) highlight the improved scalability of Harman’s infotainment platform allowing for cost effective entry into non-luxury vehicles.
Gross margins should widen in both fiscal years, in our opinion, driven by productivity improvement in the infotainment business.
We believe the company is a leader in low cost manufacturing and that cost controls will support additional operating margin expansion in FY 2016 and FY 2017.
We view the company’s financial position as healthy, with $1.6 billion in liquidity, at June 30, 2015.
At that date it had $650 million in cash and cash equivalents and long-term debt of $798 million. Our 12-month target price of $145 is based on historical P/E analysis.
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