Founder, BWS Financial Inc

Hamed Khorsand

Founder

Independent Stock Specific Research

BWS Financial Inc

BWS provides independent stock specific research focused on companies with distinct value that are going through a special situation where there is a tangible catalyst not priced in. The catalyst can be anything from new product, restructuring, M&A, management change, change in business strategy, etc. BWS’s focus is to understand the change and evaluate the potential return for investors.

BWS utilizes a self formed proprietary approach in discovering stocks by putting great emphasis on deep research. BWS does generate short recommendations following a similar criteria.

Equity Bottom-Up

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Garrett Motion (GTX) reported third quarter results missing our estimates in what was already well established as a tough quarter for the auto industry. During the quarter automakers continued to curtail their production levels due to semiconductor shortages.</li></ul> <ul type="disc"><li>Management had already warned when GTX reported second quarter results that it was looking like a weak third quarter with prospects of some activity in the fourth quarter. GTX’s third quarter results reflected such a scenario, but revenue ended up being $85 million below our estimate.</li></ul> <ul type="disc"><li>The turbochargers GTX was shipping in the quarter were mostly for commercial vehicles and aftermarket where the margins are higher. This enabled GTX to report operating margin of 12.3 percent and adjusted EBITDA of $134 million, or 16.0 percent.</li></ul> <ul type="disc"><li>GTX’s stock has been trading in a range over the last several months with waiting for a turn in the industry before purchasing stock. The demand for automobiles is strong enough where GTX could see steady increase in revenue for three years once the chip shortage is dissipated.</li></ul>


Garrett Motion (GTX) reported third quarter results missing our estimates in what was already well established as a tough quarter for the auto industry. During the quarter automakers continued to curtail their production levels due to semiconductor shortages. Management had already warned when GTX reported second quarter results that it was looking like a weak third quarter with prospects of some activity in the fourth quarter. GTX’s third quarter results reflected such a scenario, but revenue ended up being $85 million below our estimate. The turbochargers GTX was shipping in the quarter were mostly for commercial vehicles and aftermarket where the margins are higher. This enabled GTX to report operating margin of 12.3 percent and adjusted EBITDA of $134 million, or 16.0 percent. GTX’s stock has been trading in a range over the last several months with waiting for a turn in the industry before purchasing stock. The demand for automobiles is strong enough where GTX could see steady increase in revenue for three years once the chip shortage is dissipated.

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Garrett Motion (GTX) is reducing its debt obligations and could be signaling the business is on pace with the guidance provided on the second quarter earnings report. GTX has reached an agreement with Honeywell International (HON), the sole holder of GTX’s Series B Preferred.</li></ul> <ul type="disc"><li>The Series B Preferred was structured to pay HON $800 million in eight equal annual payments. However, there were put and call options depending on GTX achieving $600 million adjusted EBITDA in trailing twelve months for two consecutive quarters.</li></ul> <ul type="disc"><li>The prepayment GTX is making helps reduce the leverage of its balance sheet while improving the capital structure. We believe GTX is on pace to achieve the guidance the Company issued with its second quarter earnings call.</li></ul> <ul type="disc"><li>GTX has forecast generating between $300 million and $400 million of free cash flow in 2021. GTX ended the June quarter with $401 million of cash and should be able to retain significant level liquidity entering 2022.</li></ul>


Garrett Motion (GTX) is reducing its debt obligations and could be signaling the business is on pace with the guidance provided on the second quarter earnings report. GTX has reached an agreement with Honeywell International (HON), the sole holder of GTX’s Series B Preferred. The Series B Preferred was structured to pay HON $800 million in eight equal annual payments. However, there were put and call options depending on GTX achieving $600 million adjusted EBITDA in trailing twelve months for two consecutive quarters. The prepayment GTX is making helps reduce the leverage of its balance sheet while improving the capital structure. We believe GTX is on pace to achieve the guidance the Company issued with its second quarter earnings call. GTX has forecast generating between $300 million and $400 million of free cash flow in 2021. GTX ended the June quarter with $401 million of cash and should be able to retain significant level liquidity entering 2022.

• Demand for light-weight vehicles remains elevated, but the lack of components is preventing automakers from ramping production. When Garrett Motion (GTX) reported second quarter results, management asserted there was little clarity into the quarter until September. Unfortunately, the environment has not improved with automakers continuing to limit their production levels.• The second quarter did not have the typical seasonal lift due to automakers pausing orders to catchup with semiconductor shortages. The third quarter seems to have many of the same attributes of the second quarter. • GTX issued full year revenue guidance of $3.7 billion to $3.9 billion with our estimate being closer to the middle of the range at $3.84 billion. However, we are now adjusting our 2021 revenue down to $3.76 billion. We are leaving our 2022 estimates unchanged as demand remains healthy and inventory is light. • The growth story that attracted us to GTX has been delayed until 2022.

• Demand for light-weight vehicles remains elevated, but the lack of components is preventing automakers from ramping production. When Garrett Motion (GTX) reported second quarter results, management asserted there was little clarity into the quarter until September. Unfortunately, the environment has not improved with automakers continuing to limit their production levels.• The second quarter did not have the typical seasonal lift due to automakers pausing orders to catchup with semiconductor shortages. The third quarter seems to have many of the same attributes of the second quarter. • GTX issued full year revenue guidance of $3.7 billion to $3.9 billion with our estimate being closer to the middle of the range at $3.84 billion. However, we are now adjusting our 2021 revenue down to $3.76 billion. We are leaving our 2022 estimates unchanged as demand remains healthy and inventory is light. • The growth story that attracted us to GTX has been delayed until 2022.

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Garrett Motion (GTX, GTXAP) was not immune to the production curtailments within the auto industry. GTX reported second quarter results showing a decline in the number of turbocharger units sold in the quarter while average selling price (“ASP”) rose.</li></ul> <ul type="disc"><li>Automakers have been focusing on producing their highest margin vehicles at a time when semiconductors are in short supply to meet industry demand. The change in product mix allowed GTX to report an increased gross margin and operating margin.</li></ul> <ul type="disc"><li>The demand environment for vehicles has increased resulting in lowered channel inventory. Automakers have stated they expect the tight inventory environment could remain until 2023. At the same time, new car models are being introduced and GTX is winning greater share of light vehicles in the US with its new gasoline turbochargers.</li></ul> <ul type="disc"><li>We have made changes to our earnings model after GTX updated its guidance for the year. We believe GTX is taking a cautious tone reflecting the chip shortage causing automakers to reduce production in the near-term.</li></ul>


Garrett Motion (GTX, GTXAP) was not immune to the production curtailments within the auto industry. GTX reported second quarter results showing a decline in the number of turbocharger units sold in the quarter while average selling price (“ASP”) rose. Automakers have been focusing on producing their highest margin vehicles at a time when semiconductors are in short supply to meet industry demand. The change in product mix allowed GTX to report an increased gross margin and operating margin. The demand environment for vehicles has increased resulting in lowered channel inventory. Automakers have stated they expect the tight inventory environment could remain until 2023. At the same time, new car models are being introduced and GTX is winning greater share of light vehicles in the US with its new gasoline turbochargers. We have made changes to our earnings model after GTX updated its guidance for the year. We believe GTX is taking a cautious tone reflecting the chip shortage causing automakers to reduce production in the near-term.

<ul type="disc"><li>We are initiating coverage of Garrett Motion (GTX) with a Buy Rating and $15 target.</li></ul> <ul type="disc"><li>
Garrett Motion (GTX, GTXAP) has emerged from bankruptcy protection with fewer distractions and focus on growing market share in turbochargers for automobiles.</li></ul> <ul type="disc"><li>GTX filed for Chapter 11 bankruptcy to settle outstanding asbestos claims that were part of a business Honeywell (HON) owned but was part of the GTX spin-off. GTX no longer has such indemnity exposure and has a simplified agreement in paying HON.</li></ul> <ul type="disc"><li>Continued growth in gasoline turbochargers creates a catalyst for sales growth over the next three years.</li></ul> <ul type="disc"><li>GTX’s development of its e-turbo turbocharger and fuel cell compressor gives GTX exposure to hybrid and fuel cell vehicles solidifying a long runway to grow sales beyond gasoline and diesel.</li></ul> <ul type="disc"><li>GTX’s stock is trading at a discount to peers and where the shares were prior to its financial issues even though the sales growth is likely to have linear characteristics for the next couple years.</li></ul>

We are initiating coverage of Garrett Motion (GTX) with a Buy Rating and $15 target. 
Garrett Motion (GTX, GTXAP) has emerged from bankruptcy protection with fewer distractions and focus on growing market share in turbochargers for automobiles. GTX filed for Chapter 11 bankruptcy to settle outstanding asbestos claims that were part of a business Honeywell (HON) owned but was part of the GTX spin-off. GTX no longer has such indemnity exposure and has a simplified agreement in paying HON. Continued growth in gasoline turbochargers creates a catalyst for sales growth over the next three years. GTX’s development of its e-turbo turbocharger and fuel cell compressor gives GTX exposure to hybrid and fuel cell vehicles solidifying a long runway to grow sales beyond gasoline and diesel. GTX’s stock is trading at a discount to peers and where the shares were prior to its financial issues even though the sales growth is likely to have linear characteristics for the next couple years.

GTX: Motion for Commotion, Initiating with Buy

Switzerland

Garrett Motion Inc. operates as an automobile technology provider. The Company offers turbocharging, electric boosting, and automotive software solutions. Garrett Motion serves customers worldwide.

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Garrett Motion (GTX US)

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