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Robert W. Baird Downgrades Harman International to ‘Neutral’

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Price movement

Harman International Industries (HAR) has a market cap of $6.3 billion. It fell by 0.71% to close at $86.92 per share on August 5, 2016. The stock’s weekly, monthly, and year-to-date (or YTD) price movements were 5.2%, 21.7%, and -6.8%, respectively, on the same day. HAR is trading 8.8% above its 20-day moving average, 12.7% above its 50-day moving average, and 3.8% above 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 expected by analysts 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 8.9% on August 5.

The iShares Morningstar Mid Core ETF (JKH) invests 0.32% of its holdings in HAR. The ETF tracks a market-cap-weighted index of US midcap companies that exhibit both growth and value characteristics as determined by a multifactor selection.

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

  • Delphi Automotive (DLPH) — $18.6 billion
  • Lear (LEA) — $8.3 billion

Harman’s rating

Robert W. Baird has downgraded Harman International Industries’ rating to “neutral” from “outperform” and set the price target at $87 per share.

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Performance of Harman International in fiscal 4Q16 and 2016

Harman International reported fiscal 4Q16 net sales of $1.9 billion, a rise of 11.8% from the net sales of $1.7 billion in fiscal 4Q15. Sales of the connected car, professional solutions, lifestyle audio, and connected services segments rose by 11.2%, 0.35%, 24.8%, and 6.9%, respectively, between fiscals 4Q15 and 4Q16. The company’s gross profit margin and operating income rose by 3.2% and 35.8%, respectively.

Its net income fell to $72.9 million in fiscal 4Q16, compared with $73.2 million in fiscal 4Q15. It reported EPS (earnings per share) of $1.01 in fiscals 4Q15 and 4Q16. It reported adjusted EPS of $1.57 in fiscal 4Q16, a rise of 14.6% from fiscal 4Q15.

Fiscal 2016 results

In fiscal 2016, HAR reported net sales of $6.9 billion, a rise of 11.3% YoY (year-over-year). The company’s gross profit margin and operating income rose by 2.6% and 23.5%, respectively, in fiscal 2016.

Its net income and EPS (earnings per share) rose to $361.7 million and $4.99, respectively, in fiscal 2016, compared with $342.7 million and $4.84, respectively, in fiscal 2015. It reported adjusted EPS of $6.24 in fiscal 2016, a rise of 9.3% over fiscal 2015.

Harman’s cash and cash equivalents fell by 7.3% and its inventories rose by 1.8% in fiscal 2016. Its current ratio and debt-to-equity ratio rose to 1.6x and 1.47x, respectively, in fiscal 2016, compared with 1.4x and 1.45x, respectively, in fiscal 2015.

Projections

The company has made the following projections:

Fiscal 2017

  • sales in the range of $7.3 billion to $7.5 billion
  • operational EBITDA (earnings before interest, tax, depreciation, and amortization) in the range of $900 million to $940 million
  • operational EPS in the range of $6.75 to $7

Fiscal 2018

  • sales of ~$7.7 billion
  • operational EBITDA of ~12.7%

Fiscal 2019

  • sales of ~$8.6 billion
  • operational EBITDA of ~13.5%

In the next part of this series, we’ll discuss Nu Skin Enterprises (NUS).

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