Harman Blows the Doors Off the Connected Car

Harman International’s (NYSE:HAR) blowout quarter last week has cast off any remaining doubt that the connected car is a major growth trend.

connected-car

While there has been a lot of talk around the connected home and all the mega-cap players – from Google (NASDAQ:GOOGL) to Apple (NYSE:APPL) to Honeywell (NYSE:HON) – the connected car has remained just beyond the spotlight.

But with demand for cars as strong as it’s been, manufacturers have pushed the limits to bring connectivity into the one place beyond the home where there is always a captive audience.

The list of car companies introducing new connectivity features is massive: Ford, Volvo, Volkswagen, Audi, Porsche, Toyota, BMW and Hyundai. It’s pretty much every manufacturer out there. They all want a system that will help differentiate their vehicles to consumers. And Harman is delivering.

You’ve likely heard of this company, or at least its well-known brands, which include Infinity, JBL, Lexicon, AKG, Harman Kardon and Mark Levinson.

Harman is doing the right things at the right time, and it’s paying off. The company has become the key player to connect new technology developers and auto manufacturers. As its CEO says, Harman is the bridge between Silicon Valley and the auto makers.

A major strategic switch from a previous life as a hardware-focused company to the current status as a software-focused company is opening up vast opportunities. It’s not just about a car stereo system anymore – it’s about back-up cameras, accident prevention, emergency response . . . even finding a restaurant to meet your tastes while on the road.

Harman’s ability to execute was well-rewarded last week when the stock exploded more than 20% higher on a massive earnings beat.

The market was expecting quarterly EPS of $1.28, but Harman delivered a full $0.51 above expectations. Revenue of $1.58 billion was up 19% and came in $100 million ahead of expectations.

The opportunity in front of Harman remains sizeable if the company can maintain its leadership position in the connected car market. There are over 254 million registered vehicles just in the U.S., versus 133 million housing units (if you want to compare to the connected home’s market potential).

And the number of new cars sold each year is far above the number of new homes built (15.6 million new cars in 2013 versus around 1 million homes).

And of course, the number of cars sold worldwide is much higher – 2013 was a record year as 83 million cars were sold worldwide.

After rallying from $100 to nearly $130 per share, Harman is not a stock to run out and buy today. But for those looking to get into the No. 1-connected car company out there, the stock is absolutely one to put on the watch list for purchase after it cools down.

Management just raised EPS guidance for the year from $5.25 to $5.85. If auto sales stay strong there is likely some upside potential to that figure. And one would think there is upside to the company’s dividend as well. Management recently declared a $0.33 per share quarterly dividend, which is in line with the previous payment.

Give Harman a look and put it on your watch list for potential purchase at a later date. The connected car is here to stay. And for the time being, Harman is the undisputed leader.

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Published by Wyatt Investment Research at