Piper Warns Of Execution Risk At Harman

With nearly 50 percent of its revenue being generated by in-vehicle infotainment systems, Harman International Industries Inc./DE/ HAR was among the “purest ways to play the "connected car" theme,” Piper Jaffray’s Alexander E. Potter said in a report. The analyst initiated coverage of the company with a Neutral rating and a price target of $84.

The in-vehicle infotainment systems segment should drive multi-year secular growth, analyst Alexander Potter commented, adding, “…we think GARP investors should keep HAR on their radar screens accordingly.”

At the same time, one of Harman’s smaller segments witnessed margin pressure due to salesforce re-shuffling and other pressures. “With ~25% of revenue potentially exposed to continued execution risk, we prefer to steer investors elsewhere until HAR emerges from the penalty box,” Potter wrote.

Visibility Into Non-Automotive Low

With the shares having declined recently, this may have been a good time to invest in Harman. The analyst said, however, that purchasing the stock at this time “implicitly signals faith in the company's ability to restore margins in the Professional Solutions and Connected Services segments, which combine to represent 25% of revenue.”

Although management has indicated that it has a plan in place, Potter stated, “…we have a limited history with the company and limited visibility into these end markets. For a comparable multiple, we prefer other options.”