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Pacific Crest Downgrades Harman International to ‘Sector Weight’


Jul. 25 2016, Published 3:01 p.m. ET

Price movement

Harman International Industries (HAR) has a market cap of $5.6 billion. It fell by 2.9% to close at $79.72 per share on July 22, 2016. The stock’s weekly, monthly, and year-to-date (or YTD) price movements were 2.2%, 6.1%, and -14.6%, respectively, on the same day. HAR is trading 7.1% above its 20-day moving average, 5.6% above its 50-day moving average, and 6.1% below its 200-day moving average.

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Related ETFs and peers

The Guggenheim Raymond James SB-1 Equity ETF (RYJ) invests 0.71% of its holdings in HAR. The ETF tracks an equal-weighted index of US-listed stocks that analysts expect to achieve a 15% total return and outperform the S&P 500 over the next six to 12 months. The YTD price movement of RYJ was 7.4% on July 22.

The iShares Morningstar Mid-Cap Growth Index ETF (JKH) invests 0.50% of its holdings in HAR. The ETF tracks a market-cap-weighted index of mid-cap companies selected by Morningstar based on their growth characteristics.

The market caps of HAR’s competitors are as follows:

  • Delphi Automotive (DLPH): $18.7 billion
  • Lear (LEA): $8.5 billion

Harman’s rating

Pacific Crest has downgraded Harman International Industries rating to “sector weight” from “overweight.”

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Performance of Harman International in fiscal 3Q16

Harman International (HAR) reported fiscal 3Q16 net sales of $1.6 billion, a rise of 11.2% over the net sales of $1.5 billion in fiscal 3Q15. Sales of the Connected Car, Lifestyle Audio, and Connected Services segments rose by 5.1%, 11.6%, and 147.8%, respectively.

Sales of the Professional Solutions segment fell by 4.1% between fiscals 3Q15 and 3Q16. The company reported a net foreign exchange of -$3.6 million in fiscal 3Q16, compared with $3.4 million in fiscal 3Q15.

In fiscal 3Q16, HAR’s net income and EPS (earnings per share) rose to $88.8 million and $1.22, respectively, compared with $70.3 million and $0.99, respectively, in fiscal 3Q15.

Harman’s cash and cash equivalents fell by 44.5%, and its inventories rose by 21.1% between fiscals 4Q15 and 3Q16. Its current ratio rose to 1.7x, and its debt-to-equity ratio fell to 1.3x in fiscal 3Q16, compared with 1.4x and 1.5x, respectively, in fiscal 4Q15.


Harman International Industries (HAR) has updated its projections for fiscal 2016:

  • revenue of ~$6.8 billion
  • operational EPS of ~$6.20

Reductions in the company’s revenue and EPS are due to the weakness in the Professional Solutions division and supply constraints as a result of the earthquakes in Japan. In the next part of this series, we’ll take a look at Fiat Chrysler Automobiles (FCAU).


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