Garrett Motion Inc. Skids on Results: Is it Time to Buy the Dip?

Key Points

• Garrett Motion issued a report in line with its pre-released figures. 
• The short interest is high, but the news doesn't spark a squeeze. 
• The guidance is favorable but may leave the stock range bound in 2023. 

If you use the analysts for a guide, the post-release dip in Garrett Motion Inc. NYSE: GTX shares offers a buying opportunity. The consensus is a "buy" with a price target roughly 85% above the pre-release price action, but there is a caveat. MarketBeat tracks only one analyst with a current rating, but it is relatively fresh. It’s from BWS and came out in February.  

Until then, the company has outperformed the automotive industry due to its position. The company makes advanced turbocharger systems for the commercial OEM market and branches into EV technology. EV technology focuses on boosting electric and hybrid vehicle performance. Among the many criticisms of EVs are power and range, and there is no shortage of companies working to advance the technology. 

Garrett Motion Results: No Catalyst for Higher Prices 

Garrett Motion had a decent quarter, if mixed based on analyst estimates. The analyst estimate means less because Garrett pre-released results a few weeks ago. The takeaway is that revenue and earnings are slightly above those figures. The company reported $970 million in quarterly revenue, up 8% compared to last year and compounded by a widening margin. The growth was driven by volume, easing semiconductor shortages, market share gains driven by new technology and cost recovery efforts. 

"Garrett had an excellent start to the year with revenue growth that significantly outpaced the global light vehicle industry, driven by new product launches and program ramp-ups. This growth, together with Garrett's strong operational execution, allowed us to achieve another quarter of outstanding financial results and cash flow generation,” said Garrett president and CEO Olivier Rabiller.

The margin news is mixed due to increased R&D and CAPEX spending, but the cash flow is what counts. The company’s gross margin improved by 10 basis points, while the net income margin fell by 140 bps. The offsetting details are that the adjusted EBITDA margin increased by 110 bps to 17.3%, while net cash from operations is up 26%, $2 million more than the pre-release figure. Adjusted free cash flow is up more than 100%. That helped drive an increase in cash and liquidity despite the increase in spending and leaves the company in good shape to continue advancing its EV business. 

Garrett Guides Light Vehicle Production Higher 

Garrett Technologies increased its forecast for global light vehicle production to up 1% from its previous forecast of down 1% to flat. That’s good news for the industry and the company, which reaffirmed its guidance for the year. Garrett expects $3.79 to $3.98 billion in revenue compared to the $3.83 MarketBeat consensus, and there is a chance EV sales will accelerate over the year. The automobile market isn’t growing as much as the EV shift is accelerating. 

Garrett Motion stock is set up for a short squeeze, but it doesn’t look like it will happen now. The shorts had closed out some positions before the report but may be piling back now. The critical resistance point is near $8.90; a squeeze may trigger if the market gets above. If not, this stock will remain range-bound until another catalyst emerges.