Could Garrett Motion Deliver Mid-Teens Returns?

Why It Matters

Garrett Motion’s cash‑rich, buyback‑driven model offers mid‑teens returns for investors, but lingering debt means the upside hinges on managing leverage amid a transitioning automotive landscape.

Key Takeaways

• Garrett Motion's turbochargers remain vital despite EV shift
• Post‑bankruptcy strategy fixed asbestos liabilities and boosted equity value
• Company generates ~$0.5 B operating cash flow, funding buybacks
• Shares reduced 26% since July 2023, enhancing shareholder returns
• Expected 10‑15% annual returns, but debt level raises safety concerns

Summary

The Motley Fool Scoreboard episode focused on Garrett Motion (GTX), the turbocharger specialist that emerged from a 2018 Honeywell spin‑out and subsequent bankruptcy. Analysts Lou Whiteman and Jim Gillies each gave the business a seven‑point strength rating, noting that turbochargers are still essential for improving fuel efficiency in gasoline, diesel, hybrid and even some electric‑vehicle powertrains.

Key insights included the company’s robust cash generation—about $0.5 billion of operating cash flow over the past year—allowing aggressive share buybacks that have already cut the float by 26% since July 2023. The post‑bankruptcy restructuring locked in a fixed price for legacy asbestos liabilities, eliminated an 11% preferred‑stock dividend, and converted preferred shares to common, further strengthening the balance sheet while debt remains near $1.5 billion.

Lou highlighted Garrett as a “boring old auto parts supplier” that nonetheless fuels efficiency, while Jim praised the bankruptcy maneuver as “strategic brilliance” that turned a liability into a value‑creating event. Both pointed to the company’s low 11‑times earnings multiple relative to peers and its ability to return cash to shareholders as a compelling upside.

The analysts project 10‑15% annualized total returns, contingent on continued cash flow and buybacks. However, the sizable debt load tempers safety scores, suggesting investors should monitor leverage as the auto industry balances internal combustion engines with a gradual shift toward electrification.

Original Description

Garrett Motion has re-emerged from bankruptcy as a cash-generative turbocharger and emissions supplier trading below peers.

Lou Whiteman and Jim Gillies break down restructuring, buybacks, debt, valuation, and electrification risk.

- Company profile: turbochargers plus hybrid and fuel-cell powertrain exposure, not a one-product play.

- Liability reset: preemptive bankruptcy capped asbestos obligations and reshaped the capital base.

- Cash and buybacks: roughly $500M LTM operating cash flow; share count cut from ~310M to ~195M via repurchases.

- Leverage concern: about $1.5B net debt is the main safety constraint and could slow buybacks.

- Valuation and returns: trading near ~11x earnings; analysts see a plausible path to mid-teens total returns if execution continues.

- Risks and catalysts: BEV adoption timelines, auto cyclicality, private equity sell-downs, debt reduction, and buyback execution.

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