Is GTX Stock a Buy Now as Garrett Expands Beyond Turbos?

Core Insights - Garrett Motion (GTX) is regaining momentum as a leader in the turbocharger market, with management projecting sales growth and margin improvement by 2026, emphasizing the importance of execution and cash generation [1] Market Position and Growth Drivers - Garrett maintains a strong position in the global turbocharger market, achieving a win rate above 50% for new program awards, particularly in gasoline variable-geometry turbos and hybrid platforms, which are expected to drive growth [2] - The company is advancing zero-emission technologies, targeting approximately $1 billion in revenue from these technologies by 2030, supported by growth in mobility and industrial applications [3] Diversification and Adjacent Markets - Garrett is diversifying into industrial cooling and power-generation markets, with recent wins including an oil-free centrifugal compressor for electric bus HVAC systems in China, expected to begin production in 2027 [4] - Management anticipates that industrial cooling will account for over 5% of revenue by the end of the decade, while industrial gensets, already exceeding $100 million in sales, are projected to grow significantly by 2026 [5] Financial Guidance for 2026 - For 2026, management has guided net sales of $3.6-$3.8 billion, GAAP net income of $295–$335 million, adjusted EBIT of $520-$570 million, and adjusted EBITDA of $647-$697 million [6] - The midpoint of adjusted EBIT suggests an EBIT margin of approximately 14.7%, an increase of about 50 basis points from 2025, driven by volume and productivity initiatives, although pricing pressures and inflation may pose challenges [7] Free Cash Flow and Shareholder Returns - Garrett's capital return strategy is based on sustained free cash flow, with projected adjusted free cash flow for 2026 of $355-$455 million, consistent with the $403 million delivered in 2025 [8] - The company is committed to returning around 75% of adjusted free cash flow to shareholders through dividends and share repurchases, having repurchased $72 million in shares in Q4 and raised its quarterly dividend [9] Valuation and Earnings Estimates - Garrett trades at 9.98x forward 12-month EPS, which is below the industry average and slightly lower than BorgWarner Inc. at 10.04x [14] - The Zacks Consensus Estimate for Garrett's EPS implies a year-over-year growth of 16% for both 2026 and 2027 [15] Summary of Business Outlook - Garrett's core turbocharger business remains robust, supported by steady program wins, improving margins, and healthy free cash flow, while the company is also exploring electrified compression and industrial adjacencies, which will take time to scale [18]