Thursday, October 21, 2010

Amerigon ( ARGN - Nasdaq ) - Follow-up Report

Amerigon (ARGN $10.25) appears on track to report excellent on target Q3 results.  Almost all of the company's revenue will be generated by the automobile industry.  The new line of heated and cooled beds got off to a good start over the summer but remains in limited distribution.  Most auto related sales continue to be Amerigon's unique air conditioned seats.  The company also is getting a small contribution from its heated and cooled cupholders.  Sales visibility is high because Amerigon's products are engineered into more than 50 vehicle models.  Several include the seats as standard equipment.  The rest generally exhibit stable "take rates" (percentage of customers purchasing them as options).  Financial results in the short term hinge primarily on the number of cars sold.  Margins always are under pressure from the car manufacturers, but that leverage is limited by the absence of direct competition.  Amerigon tries to stay on their good side by driving down its own manufacturing costs and passing along at least some of the savings.  R&D spending continues to be fairly high.  Amerigon is developing several non-auto applications which could contribute over the intermediate term (1-3 years).  The company also is working with the Energy Department and some major corporate partners to development breakthrough technologies which could produce substantial energy savings over the long haul (3-5 years).

We continue to estimate 2010 income will reach $.40 a share.  That figure excludes non cash stock option and intangible amortization expenses.  Next year $.50 a share remains a realistic target.  Above average growth is likely to be sustained in subsequent years.  Amerigon is continuing to sign up additional vehicle platforms for its core seating products.  Total car sales are likely to expand as today's fleet ages.  Growth in foreign markets could accelerate, fueled by a cheaper "ventilated" seating line that uses ambient air from the auto's cabin for cooling.  That technology currently is used by German competitors in cars like Mercedes and BMW.  New products outside the auto industry promise additional leverage.  In 2-3 years income could reach $1.00 a share.  Applying a P/E multiple of 20x suggests a target price of $20 a share. 

A heat recapture technology now in development offers tremendous long term potential.  Applying similar materials and techniques used in the air conditioned seating line, Amerigon is developing technologies that recycle waste heat and turn it back into electricity.  The Energy Department has increased its funding for the research every year for the past four years.  In car engines, Amerigon speculates it might be able to boost MPG performance by 10%-15%.  In air conditioning units, energy consumption might improve by a similar amount.  Huge licensing opportunities could develop if Amerigon reaches the finish line.

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