Knobias Clip Report (10-30-2007)

Submitted By Knobias ClipReport

ARGN: Reports Solid Earnings on Strong CCS Demand

On the eve of one of the most important Fed Reserve decisions in recent memory, the markets were mixed with the Nasdaq gaining slightly while the Dow and S&P saw small declines. Causing the mixed move was the notion that the Fed decision would have a greater impact on the Dow’s blue chip stocks and the broader overall market rather than the technology driven Nasdaq.

Earnings were still being reported in the midst of the uncertain environment, and for the most part, haven’t been as stellar as in past quarters. One name bucked that trend though, and because of the numbers, broke out to new all time highs on some fairly heavy volume.

Amerigon (ARGN) develops products based on its advanced, proprietary, efficient thermoelectric (TE) technologies for a wide range of global markets and heating and cooling applications. The Company's current principal product is its proprietary Climate Control Seat system, a solid-state, TE-based system that permits drivers and passengers of vehicles to individually and actively control the heating and cooling of their respective seats to ensure maximum year-round comfort. CCS, which is the only system of its type on the market today, uses no CFCs or other environmentally sensitive coolants. Amerigon maintains sales and technical support centers in Southern California, Detroit, Japan, Germany and England.

Before the market opened on Tuesday, the Company reported their third quarter 2007 results. Strong demand for the Company's proprietary Climate Control Seat system drove revenues for this the third quarter and first nine months to $15.9 million and $47.2 million, respectively, up from $12.7 million and $35.6 million in last year's third quarter and first nine months. The jump was a 25% increase from Q306 to Q307.

Net income for the third quarter was $3.1 million, or 14c per basic and 13c per diluted share, compared with net income in last year's third quarter of $900,000, or 4c per basic and diluted share. The Company did, however, enjoy a deferred research and development (R&D) tax benefit of approximately $1.7 million following a study of its research and development activities and related expenses for the period from 1999 through 2006. They did note that they would expect to qualify for further R&D credits, but without the tax benefit during the recent quarter, net income for the third quarter was $1.3 million or 6c per adjusted basic and diluted share.

Following the announcement, shares broke out to all time highs, hitting intraday records of $22.35 before settling in the $20.00 range, up only 5.5%.

The interest could have been sparked by the GAAP numbers, which displayed the benefit and a subsequent year over year EPS increase of over 200%, but also of note was the upbeat feeling towards 2008.

President and Chief Executive Officer Daniel R. Coker noted in the press release, “We had another very good quarter, and we are continuing to have a very good year in 2007. We are achieving the goals we set out for our CCS business in 2007 and are making progress on new applications for our TE technology. As a result, our revenues are growing and expanding as we have predicted, and our bottom line is following along the same path.”

Coker noted that the "take rates," which are the rates that a feature like CCS are chosen by the car buying customers, continue to reflect high acceptance, and are solid and promising. He also added that the Company is getting better penetration in Asia and Europe, a trend that should continue through at least 2008. Coker also said that the Company expects CCS revenue growth in 2008 of 30% to 40% with continued strong increases in profitability.

While the domestic economy could see a pullback causing demand for luxury items to dip, internationally, China is seeing a rising middle class which has begun to demonstrate an excess of disposable income. With a historical derived revenue mix of approximately 65% North American and 35% Asian, the Company could escape any domestic slowdown unscathed with a continuation of traction in the region.

In any event, shares have spiked extremely hard on the earnings report causing extended valuations which could limit upside for the time being. Following the close of the bell on Tuesday, the reaction of the stock even caused Roth Capital Partners to cut their rating from Buy to Hold on valuation concerns. While the name remains a solid play in the luxury area, 2008 forward price to earnings ratios of 87 are hard to justify. Investors would be wise to keep the name on the radar and look for less risky entries or names.



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