Amerigon (ARGN - Nasdaq)

Amerigon (ARGN $10.15) is the leading manufacturer of heated and cooled automobile seats.  A number of suppliers offer heated seats.  Amerigon's technology provides a cooling option, as well, for when the weather gets hot.  The technology usually is installed in the two front seats.  Passengers can dial in whatever temperature they want.  Competitive systems made by the Germans cycle ambient air through the seats to provide cooling relief.  Amerigon provides that technology, as well, in its lower end product line.  At the high end the company employs a patented system that generates instant performance, and much colder temperatures.  During the mid 2000s, as the technology gained adoption, car companies generally offered the seats as an option on fairly expensive vehicles.  Take rates -- the percentage of buyers who bought the option -- were and remain unusually high, typically above 70%.  That's led a growing number of models to include the technology as standard equipment.  Amerigon currently supplies approximately 50 platforms.  Additional models are in the pipeline, slated for introduction in 2011 and beyond.  Between 5% and 10% of the U.S. car market now is equipped with Amerigon's seats.  That share is likely to expand as lower cost vehicles are outfitted with the systems.  Total volume could benefit, as well, if the overall car market rebounds from its currently reduced state.  Before the recent recession U.S. new auto sales averaged 16 million units a year.  Today they're in the 11-12 million range.

Expansion into new markets could amplify results.  After at least two years of testing Amerigon recently launched a line of heated and cooled beds, aimed at the upscale end of the market.  The queen size retails for $4,000.  The king goes for another $500.  Each side of the bed has separate temperature controls.  When it's getting too hot, just turn down the temperature.  If it's cold, turn it up.  Everybody who tries it, loves it.  Whether they'll pay the money is another story.  Initial demand has been strong, though.  The roll-out is beginning in Texas.  Geographic expansion is slated to keep going until the entire country is reached.  A retail partner is in place. 

A related move into medical beds could provide additional leverage.  Testing has been underway for a while on specialized chairs for chemotherapy and dialysis patients.  Their body temperatures fluctuate dramatically during treatment.  Temperature controlled chairs could ameliorate the effects better than the current method of piling on and removing blankets.  Bed-ridden patients could be another target.  Amerigon doesn't have a partner for the technology yet, but success in the consumer market might help move things along.

Earnings are advancing rapidly in 2010.  Performance declined last year as the auto market felt the recession's impact.  The combination of market share gains and an overall rebound in car demand has restored profitability to past levels.  Earnings recovered from a year earlier loss to reach $.10 a share in the June quarter.  For the entire six months income reached $.18 a share.  Revenues increased 169% in the quarter to $28.8 million.  For the entire year earnings of $.40 a share represent a realistic target.  Next year we estimate further improvement to $.50 a share.  In 2-3 years earnings could hit $1.00 a share, primarily from the auto business.  A stronger showing could develop if some of the company's new product lines make significant contributions.  Applying a P/E multiple of 20x suggests a target price of $20 a share, potential appreciation of 95% from the current quote.