Can Garrett Motion Turbocharge A Short Squeeze?

Key Points

• Garrett Motion issued strong preliminary results and guidance. 
• The market is set up for a short squeeze but significant hurdles remain. 
• Institutions are buying this stock but their activity is light and not likely to drive a rally. 

Garrett Motion NYSE: GTX is a manufacturer of commercial and light-vehicle turbochargers for the OEM market, and it just released news that could turbocharge this market and spark a short squeeze. The company released preliminary results for the Q1 period and guidance for 2023 that is well above the analyst consensus estimates. With short interest running near 15%, short sellers may start closing positions, but take this with a grain of salt.

The analysts are bullish on this stock and see tremendous potential for gain, but Marketbeat.com is only tracking 1 with a rating issued this year. The good news is that the report came with a $15 price target, roughly 90% above the current market action. 

“Our strong first quarter results and increased 2023 outlook reflect our significant operating momentum as we continue to advance our business transformation, along with strong industry volumes in key regions, favorable foreign exchange, and robust cash flow generation. We are updating our outlook accordingly as we see some of the strength carrying into the next quarters. We remain focused on operational excellence, flexing our variable cost structure and maximizing cash flow generation,” said Garrett President and CEO, Olivier Rabiller.

Garrett Motion Raises Guidance; Good News For Auto Industry

As dubious as its quality as a bellwether of the auto industry is, Garrett Motion’s preliminary Q1 results and guidance bode well for the group. The company expects Q1 revenue to be top $970 million, up 8% compared to last year and beats the consensus by 520 basis points. The strength is partly driven by the company’s shift toward electrification and broader industry demand. Adjusted EBITDA Is expected to have grown 17.3% in evidence of a widening margin, and cash flow should top $90 million. The balance sheet is also strong. The company reports $291 million in cash and more than $750 million in liquidity, with debt at $1.93 billion and down sharply from last year. 

The guidance is good news for the auto industry. The company expects demand in its light vehicle segment to increase by 1% compared to the previous flat forecast, which can be extrapolated to mean above-consensus production this year. Regarding Garrett Motion, it is expected to bring in $3.79 to $3.98 billion in revenue compared to the previous guidance of $3.55 and $3.85 and the $3.82 expected by the analyst. 

The long-term outlook for Garrett Motion is favorable, with the company investing in electrification. This year’s guidance includes R&D and CAPEX spending on EVs, with 50% of the R&D  and 20% of the CAPEX budgets allocated. Among the avenues of advance are performance-boosting technologies for hybrid vehicles, fuel cells and connected-vehicle solutions. 

Institutions Support Garrett Motion But Aren’t Driving It Higher 

The institutions support Garrett Motion, but their activity will not drive the stock higher. They own about 73% of the company and bought in a ratio of 2:1 compared to selling over the past 12 months but the activity is very light. This situation has the stock trending sideways within a range that needs to be broken to get the shorts to consider closing positions seriously. The top of the range is near $8.50, but resistance could be present up to the $8.90 region. A move above that level would be bullish, possibly leading to a sustained rally.