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Just Reorganized, is This Auto Parts Company in Better Shape Now?

Auto parts company Garrett Motion (GTX) recently went through restructuring, implementing its Plan of Reorganization, which is expected to bolster its overall fundamentals. However, its net sales declined in the last reported quarter. Let’s discuss the factors that could drive its near-term performance...

Auto parts company Garrett Motion Inc. (GTX) operates as a designer, manufacturer, and seller of turbo-charger and electric-boosting technologies for light and commercial vehicle original equipment manufacturers. The company is headquartered in Rolle, Switzerland.

On April 30, GTX announced the successful completion of its Chapter 11 cases and restructuring, as well as the implementation of its Plan of Reorganization. At its emergence, the company was expected to have approximately 65,035,801 million shares of new common stock issued and outstanding. 

The reorganization also eliminates its liabilities to Honeywell International Inc. (HON). The restructuring is expected to decrease the company’s long-term debt and improve its maturity profile.

Over the past year, GTX’s stock has gained 5.6% and 12.6% over the past three months to close its last trading session at $8.05. It has gained 35.3% over the past month and 4.1% intraday.

Here are the factors that could affect GTX’s performance in the near term:

Bottom-line Growth

For the fiscal first quarter ended March 31, GTX’s net sales decreased 9.6% year-over-year to $901 million. On the other hand, net income rose 183.8% from the prior-year quarter to $88 million. 

Earnings per common share came in at $0.15, up 110.9% from the same period the prior year. Comprehensive income increased 1,750% from the prior-year period to $111 million.

Low Valuations

In terms of its forward EV/EBITDA, GTX is trading at 2.69x, 66.7% lower than the industry average of 8.07x. Its forward EV/EBIT multiple of 3.18 is 71.6% lower than the industry average of 11.22. In terms of its forward Price/Sales, it is trading at 0.14x, 83.2% lower than the industry average of 0.84x.

Wide Profit Margins

GTX’s trailing-12-months net income margin and levered FCF margin of 19.45% and 11.74% are 198.2% and 261.5% higher than their respective industry averages of 6.52% and 3.25%. Its trailing-12-months ROTC and ROA of 81.10% and 25.60% are 1,041.7% and 361.9% higher than their respective industry averages of 7.10% and 5.54%.

POWR Ratings Reflect Promising Prospects

GTX’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall rating of B, which equates to Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.

The stock has an A grade for Value, in sync with its lower than industry valuations. GTX also has a Quality grade of B, consistent with its wide profit margins.

In the 68-stock Auto Parts industry, it is ranked #8. The industry is rated B.

Click here to see the additional POWR Ratings for GTX (Growth, Momentum, Stability, and Sentiment).

View all the top stocks in the Auto Parts industry here.

Bottom Line

The company’s reorganization is expected to boost its balance sheet position across many verticals. Although its sales declined in the last reported quarter, its bottom-line growth remains solid. Moreover, considering its robust margins, I think the stock might be a solid buy now.

How Does Garrett Motion Inc. (GTX) Stack Up Against its Peers?

While GTX has an overall POWR Rating of B, one might consider looking at its industry peers, Ituran Location and Control Ltd. (ITRN) and Genuine Parts Company (GPC), which have an overall A (Strong Buy) rating.

GTX shares were trading at $7.89 per share on Tuesday afternoon, down $0.16 (-1.99%). Year-to-date, GTX has declined -1.74%, versus a -19.40% rise in the benchmark S&P 500 index during the same period.

About the Author: Anushka Dutta

Anushka is an analyst whose interest in understanding the impact of broader economic changes on financial markets motivated her to pursue a career in investment research.


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