Earnings leverage could be substantial after W.E.T. is consolidated from an operational standpoint. Amerigon's air conditioned seats have been well received by American and Asian carmakers but have generated little penetration of the European market to date. High end cars made in Europe typically employ ventilated seat cooling. W.E.T. has strong relationships with BMW, Porsche, Volkswagon and other European producers. That could open the door to Amerigon's more expensive but better performing systems. Amerigon's new heated and cooled cupholders are growing rapidly in America and Asia, too. The merger might speed up their adoption in Europe. Amerigon's existing relationships might facilitate orders for some of W.E.T.'s systems, as well, particularly the heated steering wheels.
In 2-3 years sales could reach $675 million as the auto market recovers and Amerigon advances its own business. Pretax margins could expand to 12%. The company issued $65 million in preferred stock earlier this year to help finance the W.E.T. transaction. Amerigon has the option to retire that obligation with either cash or stock over the next three years. Our projections assume a big proportion will be paid in stock to preserve working capital. Despite the higher share count income could reach $1.95 a share. Applying a P/E multiple of 16x suggests a target price of $30 a share, potential appreciation of 135% from the current quote.
Amerigon also appears to be making progress with its BSST technology. Funding from commercial partners and federal agencies continues to rise. The technology is intended to convert waste heat into electricity. If the company can approach the commercialization stage the stock could move on the prospect of substantial royalty income. Of late, the company has become increasingly tight lipped in its comments about BSST, although what it has said is upbeat.
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