KeyBanc Sees Lear's (LEA) Equity interest in Tempronics as Negative for Gentherm (THRM)

September 8, 2016 3:19 PM EDT
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KeyBanc maintained a Sector Weight rating on Gentherm Incorporated (NASDAQ: THRM). Earlier Lear Corporation (NYSE: LEA) announced that it has entered into a strategic partnership with Tempronics, pursuant to which Lear obtained a minority equity interest in Tempronics and also secured exclusive rights to its thermoelectric seat heating and cooling technology for automotive applications. Analyst Brett D. Hoselton views this news as a "materially negative" read through to Gentherm.

Hoselton explained, "We believe investors should view LEA's minority equity interest in Tempronics, and LEA's exclusive rights to its thermoelectric seat heating and cooling technology, as a materially negative read through to THRM as we think: 1) revenue growth outlook of 10%+ remains overly optimistic; 2) margin implications from the second largest customer having more sourcing options could be negative to ASPs; and 3) it is increasingly clear THRM's CCS products are less proprietary and less advanced."

The analyst added, "THRM's 10%+ organic revenue growth target long term continues to look overly optimistic to us as its second largest customer is likely to become less reliant on their technologies. In 2015, LEA represented 22% of THRM's revenue. We have yet to hear back from LEA's IR and haven't formed an opinion on whether or not all of the LEA revenue is at risk longer term as a result of this agreement. That said, one should assume a significant portion of THRM's revenues from LEA are at risk over the next production cycle."

For an analyst ratings summary and ratings history on Gentherm Incorporated click here. For more ratings news on Gentherm Incorporated click here.

Shares of Gentherm Incorporated closed at $33.93 yesterday.

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