Note: This Report Contains Substantially New Material. Subsequent Reports Will Have Changes s1

October 23, 2009 Zacks Research Digest Research Associate: Neha Poddar, M.Fin. Editor: Deepa Agarwal, M.Com., M.Fin.

Sr. Ed.: Ian Madsen, CFA; [email protected]; 1-800-767-3771, x9417

www.zackspro.com 111 N. Canal Street, Suite 1101 ● Chicago, IL 60606 Gentex Corporation (GNTX-NASDAQ) $16.64*

Note: This report contains substantially new material. Subsequent reports will have changes highlighted

Reason for Report: 3Q09 Earnings Update Prev. Ed.: September 7, 2009; Minor Change in Estimates

Brokers’ Recommendations: Neutral: 66.7% (4); Positive: 16.7% (1); Negative: 16.6% (1) Prev Ed: 5; 1; 1

Brokers’ Target Price: 17.60 (↑ $3.47 from the prior; 5 firms) Brokers’ Avg. Expected Return: 5.8%

Note: October 21, 2009; FLASH UPDATE: 3Q09 Earnings Update

*Note: Though dated October 23, 2009, share price and broker material are as of October 22, 2009.

Note: The tables below for Revenue, Margins, and Earnings per Share contain fewer broker material than the broker material used in the Valuation table. The extra figures in the Valuation table come from reports that did not have accompanying spreadsheet models.

Portfolio Manager Executive Summary

Michigan based Gentex Corporation (GNTX or the Company) designs, manufactures, and markets products that use electro-optic technology. The Company's product lines mainly include automatic- dimming rearview mirrors and fire protection products.

Of the six firms covering the stock, one firm had a positive stance, four provided neutral ratings, and one had a negative stance.

Neutral or equivalent outlook (4/6 firms or 66.7%) – Target prices range from $17.00-$18.00. The neutral firms based their valuation on EPS or EBITDA analysis. These firms believe that GNTX is a high quality supplier and an industry survivor. These firms remain optimistic on GNTX, given its leading share in the auto-dimming mirror market, superior technology, a non-unionized work force, a debt-free balance sheet, strong margin, and revenue growth prospects. Moreover, the stock is reasonably priced relative to its past valuation and its attractive long-term outlook. However, near-term earnings potential seems limited by steep revenue declines across all regions, and based on its medium term investment portfolio, mid-term interest rates remain low and thus, equities may under perform. Moreover, these firms believe the Company’s expected margin improvement will be tough to achieve as pricing for the core self-dimming mirrors will remain under pressure, due to the sluggish global auto production and uncertain auto demand forecast for the near term.

Positive or equivalent outlook (1/6 firms or 16.7%) – The firm provided a target price of $22.00. The firm believes that GNTX is a solid company with broad customer and geographic revenue diversification, solid long-term growth prospects, industry leading margins, and an outstanding balance sheet. The firm feels that though deterioration in the macro environment may negatively impact GNTX’s performance in

© Copyright 2009, Zacks Investment Research. All Rights Reserved. FY09; however, its long-term investment thesis remains intact, given its underlying organic revenue growth driven by increasing mirror shipments and higher average mirror selling prices, margin expansion driven by operating leverage, and declining share count. The Company is also expanding its international presence, thereby reducing its dependence on domestic automakers.

Negative or equivalent outlook (1/6 firms or 16.6%) – The firm provided a target price of $13.00. The firm remains concerned about the Company’s European exposure, given the weakening outlook for the European production environment as well as the weakening high-volume North American production platforms. Finally, the firm expects gross margin profit to remain under pressure due to lower capacity utilization, price-givebacks, and lower fixed cost absorption. The firm based its valuation on P/E analysis. October 23, 2009

Recent Events

On October 21, 2009, Gentex Corporation announced its 3Q09 financial results. Highlights are given below:

 Net revenue increased 2% y/y to $155.7 million in 3Q09 from $153.1 million in 3Q08.  Net income was $23.9 million or $0.17 per diluted share in 3Q09 versus $15.1 million or $0.11 per diluted share, in 3Q08.

Overview

Key investment considerations, as identified by the analysts, are as follows:

Key Positive Arguments Key Negative Arguments

. GNTX’s revenue improved as a result of its global . The Company is highly dependent on the automotive diversification. industry and the future of the global auto industry appears . The Company continues to benefit from the launch weak. of Smart Beam and rear camera display technology. . The mirror business could face heightened competitive Several other products are in the pipeline as well. challenges, especially from Magna. . The Company’s target is to increase penetration . GNTX’s margins continue to remain under pressure. rates to drive growth. . It will continue to face pricing pressure due to low . GNTX has strong liquidity and profitability profile production in the domestic market. and no debt on the books. . GNTX’s business is highly dependent on a small number of . It is strengthening its position in the overseas key customers. market. . A substantial decline in global light vehicle production will . GNTX continues to benefit from additional vehicle hamper the Company’s earnings. models offering SmartBeam and Rear Camera Display products. These will continue to drive future growth.

Michigan-based Gentex Corporation (GNTX or the Company) designs, develops, manufactures, and markets electro-optic products (including automatic dimming rearview mirrors) for the automotive industry. The Company also manufactures fire protection products for the commercial building industry. Its mirror products include the Night Vision Safety (NVS) mirror that is offered as standard or optional equipment for over 200 vehicle models around the world. GNTX also sells dual-sensor photoelectric smoke detector and signal devices to hospitals, hotels, office buildings, and for other commercial applications throughout North America. The Company also developed a new light-emitting diode (LED) technology that yields synthetic white light suitable for illumination and signaling purposes. Its primary customers include General Motors Corporation, DaimlerChrysler AG, and Toyota Motor Corporation.

Further information on the Company is available at http://www.gentex.com .

Zacks Investment Research Page 2 www.zackspro.com NOTE: The Company’s fiscal references coincide with the calendar year. October 23, 2009

Revenue

According to the Company, net sales increased by 2% y/y to $155.7 million in 3Q09 from $153.1 million in 3Q08 (in line with the Zacks Digest average).

Segment Details of Revenue

Automotive

Automotive revenue increased by 3% y/y to $151.1 million in 3Q09 from $147.3 million in 3Q08 (in line with the Zacks Digest average). Total auto-dimming mirror unit shipments in 3Q09 decreased 7.0% y/y.

Auto-dimming mirror unit shipments in North America decreased 4% y/y in 3Q09 due to significantly lower light vehicle production. During 3Q09, North American light vehicle production declined 20% y/y versus 3Q08.

Auto-dimming mirror unit shipments to offshore customers decreased 8% y/y in 3Q09 due to lower light vehicle production in Europe and Asia. Light vehicle production in Europe decreased 14% in 3Q09, and declined 19% in Japan and Korea in 3Q09.

Fire Protection

Fire Protection revenue decreased 19% y/y to $4.5 million in 3Q09, due to the weak commercial construction market. As per the Zacks Digest model, revenue decreased 20.6% y/y to $4.5 million in 3Q09 from $5.7 million in 3Q08.

Outlook

The Company expects its revenue to increase by 30% to 35% y/y in 4Q09 based on CSM Worldwide's light vehicle production forecast. This implies revenue of $162 million for 4Q09 versus $122 million in 4Q08.

The Company's 4Q09 revenue forecast is based on CSM's end-of-September forecast for light vehicle production of 2.7 million units for North America, 4.3 million units for Europe, and 2.9 million units for Japan and Korea. CSM's FY09 production forecast in North America declined 32% y/y to 8.6 million light vehicle units; decreased 21% y/y to 16.1 million units for Europe, and declined 28% y/y 10.4 million units for Japan and Korea, versus FY08.

One analyst (Buckingham) expects European OEMs to pressure auto part suppliers for additional pricing concessions, given the expected decline in 2010 production volumes as well as increased incentive spending on luxury vehicles. The analyst expects FY10 European light vehicle production to approximate 15.3 million units, which compares to FY09 light vehicle production estimate of 16.0 million units. The analyst expects FY10 North American light vehicle production to approximate 10.5 million units, which suggests a meaningful recovery y/y from estimated levels of 8.0 million units in FY09.

Zacks Investment Research Page 3 www.zackspro.com Provided below is a summary of revenue as compiled by Zacks Digest:

Total Revenue ($MM) 3Q08A 2008A 3Q09A 4Q09E 2009E 1Q10E 2010E 2011E Zacks Consensus $137.0 $139.0 $483.0 $564.0 ↑ Automotive Products $147.4 $601.5 $151.2 $158.3 $510.7 ↑ $146.8 ↑ $614.9 ↑ $726.7 Fire Protection Products $5.7 $22.3 $4.5 $4.6 $19.1 ↓ $5.0 $19.4 ↓ $20.0 Digest Average $153.1 $623.8 $155.7 $161.9 $528.8 ↑ $146.3 ↑ $629.9 ↑ $746.7 Digest High $153.1 $624.0 $155.7 $165.0 $531.9 ↑ $151.8 ↑ $658.6 ↑ $783.4 Digest low $153.1 $623.8 $155.7 $159.0 $525.9 ↑ $140.7 ↑ $607.1 ↑ $710.0 Digest YoY growth -5.8% -4.6% 1.7% 32.4% -15.2%↑ 55.9%↑ 19.1%↑ 18.5% Digest sequential growth -10.2% 32.7% 4.0% -9.7%

Highlights from the revenue table are as follows:

 For FY09, revenue estimates range from a low of $525.9 million to a high of $531.9 million, with a Digest average of $528.8 million (↑from the previous estimate of $488.2 million).

 For FY10, revenue estimates range from a low of $607.1 million to a high of $658.6 million, with a Digest average of $629.9 million (↑ from the previous estimate of $577.8 million).

 For FY11, revenue estimates range from a low of $710.0 million to a high of $783.4 million, with a Digest average of $746.7 million.

Provided below is the graphical analysis of segment revenue as compiled by Zacks Digest:

2009E Se gm e nt Re venue 2010E Segm e nt Re ve nue

Automotive Automotive Products Products Fire Protection Fire Protection Products Products 96% 97%

2011E Se gm e nt Re ve nue 2012E Se gm ent Revenue

Automotive Automotive Products Products Fire Protection Fire Protection Products Products 97% 98%

Zacks Investment Research Page 4 www.zackspro.com Please refer to the Zacks Research Digest spreadsheet of GNTX for specific revenue estimates.

Margins

According to the Company, gross profit was $54.4 million in 3Q09 versus $46.7 million in 3Q08 (in line with the Zacks Digest average). The gross profit margin increased to 34.9% in 3Q09 from 30.5% in 3Q08 (in line with the Zacks Digest average) due to purchasing cost reductions, reduced fixed overhead costs, and improved product mix, partially offset by the impact of annual customer price reductions.

Income from operations increased 42% y/y to $33.1 million in 3Q09 from $23.3 million in 3Q08, primarily due to the increase in gross margin (in line with the Zacks Digest average). Operating margin increased 610 basis points y/y to 21.3% in 3Q09 (in line with the Zacks Digest average).

According to the Company, selling, general, and administrative (SG&A) expense was down 10% y/y to $9.3 million in 3Q09, reflecting lower expenses associated with overseas offices, reduced travel expenses, and the impact of foreign exchange.

According to the Company, engineering, research, and development (ER&D) expense fell by 8% y/y to $12.0 million in 3Q09, reflecting reduced employee compensation.

According to the Company, other income was $2.5 million in 3Q09 compared with other expense of $566,000 in 3Q08, primarily due to realized gains on the sale of equity investments, partially offset by lower investment income due to lower interest rates.

Outlook

For 4Q09, the Company expects the gross margin to remain close to 34.9%, achieved in 3Q09. SG&A expense is expected to increase 10% y/y in 4Q09 due to higher variable compensation expense and the impact of foreign exchange. ER&D expense is expected to be flat y/y in 4Q09. Depreciation and amortization expense is expected to be in the range of $36-38 million for 4Q09.

One firm (Soleil Securities) forecasts gross margin to be 35% in 4Q09 due to increased sales of mirrors with higher features, including SmartBeam and RCD. The analyst expects gross margin to drop to 32.0% in FY09 versus 32.6% in FY08 based on unabsorbed fixed overhead as manufacturing improvements and purchasing cost reductions were offset earlier in FY09 by less absorption of fixed overhead costs, given the lower top line.

As per the Zacks Digest model, cost of goods sold would decrease by 14.5% y/y in FY09, increase by 11.4% y/y in FY10, and by 15.1% y/y in FY11; and SG&A expense would decrease by 12.2% y/y in FY09, increase by 5.6% y/y in FY10 and by 11.6% in FY11. In comparison, revenue would decrease by 15.2% y/y in FY09 and increase by 19.1% y/y in FY10 and by 18.5% in FY11. Hence, gross and operating margins are expected to show upward y-o-y movements.

Zacks Investment Research Page 5 www.zackspro.com Provided below is a summary of margins as compiled by Zacks Digest:

Margin 3Q08A 2008A 3Q09A 4Q09E 2009E 1Q10E 2010E 2011E Gross 30.5% 32.6% 34.9% 35.1% 32.0%↑ 34.4%↑ 35.1%↑ 35.2% Operating 15.2% 17.6% 21.3% 21.4% 16.3%↑ 19.2%↑ 20.6%↑ 21.0% Pre Tax 14.8% 18.0% 22.9% 21.1% 16.5%↑ 18.8%↑ 20.7%↑ Net 9.9% 11.9% 15.3% 15.1% 11.3%↑ 12.5%↑ 15.0%↑

Please refer to the Zacks Research Digest spreadsheet of GNTX for specific margin estimates.

Earnings per Share

According to the Company, net income was $23.9 million or $0.17 per diluted share in 3Q09 versus $15.1 million or $0.11 per diluted share in 3Q08 due to the increase in operating income. The Company’s results are in line with the Zacks Digest average figures.

Outlook

One firm (Buckingham) increased its FY09, FY10 and FY11 EPS estimates to $0.44, $0.58 and $0.70, up from prior estimates of $0.32, $0.49 and $0.61, respectively, to reflect an increase in gross profit margin assumption and higher sales assumption.

Provided below is a summary of EPS as compiled by Zacks Digest:

EPS (in $) 3Q08A 2008A 3Q09A 4Q09E 2009E 1Q10E 2010E 2011E Zacks Consensus $0.12 $0.30 $0.48 Digest High $0.11 $0.54 $0.17 $0.19 $0.44 ↑ $0.13 ↑ $0.75 ↑ Digest Low $0.11 $0.52 $0.17 $0.17 $0.43 ↑ $0.13 ↑ $0.64 ↑ Digest Average $0.11 $0.53 $0.17 $0.18 $0.44 ↑ $0.13 ↑ $0.70 ↑ Digest YoY growth -47.6% -38.2% 54.5% 700.0% -17.9%↑ 1725.0%↑ 59.8%↑ Digest sequential growth -42.1% 88.9% 5.9% -27.8%

Highlights from the EPS table are as follows:

 For FY09, the EPS estimates range from a low of $0.43 to a high of $0.44, with a Digest average of $0.44 (↑from the previous estimate of $0.33).

 For FY10, the EPS estimates range from a low of $0.64 to a high of $0.75, with a Digest average of $0.70 (↑ from the previous estimate 0f $0.51).

Please refer to the Zacks Research Digest spreadsheet of GNTX for specific revenue estimates.

Target Price/Valuation

Of the six firms covering the stock, one provided a positive rating, four gave neutral ratings and one assigned a negative rating.

Zacks Investment Research Page 6 www.zackspro.com The average price target is $17.60 (↑ from the previous estimate of $14.13; up 5.8% from the current price). Price targets range from $13.00 (down 21.9% from the current price) (BofA Merrill Lynch) to $22.00 (up 32.2% from the current price) (KeyBanc) with a median price of $18.00 (↑ from the previous estimate of $13.00). The firm (BofA Merrill Lynch) with the lowest target price used 15x of average of 2010 and 2011 EPS for valuation, while the firm (KeyBanc) with the highest target price did not provide any valuation metric to derive the target price. Valuation targets provided by individual firms vary significantly because of differences in valuation techniques and underlying model assumptions.

Rating Distribution Positive 16.7%↑ Neutral 66.7%↓ Negative 16.6%↑ Avg. Target Price $17.60 ↑ High $22.00 ↑ Low $13.00 ↑ Median $18.00 ↑ No. of Analysts with Target Price/Total 5/6

Metrics detailing current management effectiveness are as follows:

Metrics (TTM) Company Industr S&P 500 Return on Assets (ROA) 3.00%↑ y -0.06% ↓ 3.00% ↓ Return on Equity (ROE) 3.35% ↑ -0.35% ↓ 7.37% ↓ Return on Invested Capital (ROIC) 3.27% -0.11% ↓ 4.15% ↓ ↑ The Company’s ROE and ROIC are lower than the market averages (measured by S&P 500) of 7.37% and 4.15%, respectively, while ROA is flat at 3.00%.

Capital Structure/Solvency/Cash Flow/Governance/Other

Cash Flow: Cash from operations was up 82.0% y/y to $34.0 million in 3Q09 from $19.0 million in 3Q08, primarily due to increased net income and a cash inflow from working capital. Net cash was flat y/y at $443 million, though down 9% sequentially. Net cash stood at nearly $3.25 per share in 3Q09. Return on invested capital (ROIC) was up 240 basis points sequentially to 15.0% in 3Q09.

Free cash flow in 3Q09 was up 87.0% y/y due to higher net income and a sharp reduction in capital expenditures.

Capital expenditures are expected to total $20-25 million for 4Q09.

Balance Sheet: In 3Q09, cash equivalents and investments were $453 million, up $37 million sequentially, or $3.29 per share. Accounts receivables were up 5% y/y to $74 million in 3Q09, with day’s sales of 54 versus 40 in 3Q08. Inventory was down 17.0% y/y to $47.0 million in 3Q09, with inventory days up 13 from a year earlier to 55 days. Intangibles and other assets, primarily patents, approximated only $10 million. There was no debt in 3Q09.

Share Repurchase: During 3Q09, the Company did not repurchase shares. The Company has a share repurchase plan in place with authorization to repurchase up to 28 million shares of the Company's common stock. As on September 30, 2009, including the prior share repurchases, the Company has

Zacks Investment Research Page 7 www.zackspro.com repurchased approximately 26 million shares, leaving approximately 2 million shares authorized to be repurchased under the plan.

One analyst (KeyBanc) considers share repurchases to be a key catalyst to the stock as GNTX is expected to resume share repurchases in FY10.

SmartBeam: SmartBeam is the high-beam headlamp assist system that the Company developed and introduced in 2005. SmartBeam continues to receive a great response from automakers. In the 2009 model year, SmartBeam is offered on 25 vehicle models (up from 22 in 1Q09) from seven different automakers: General Motors, Chrysler, BMW, Audi, Opel/Vauxhall, Toyota, and Land Rover. Management expects SmartBeam to be “more meaningful” in 2009.

Rear Camera Display (RCD) Mirror: The Company's RCD mirror consists of a proprietary liquid crystal display (LCD) device that shows a panoramic video view of objects behind the vehicle in real time.

Management believes that RCD mirror shipments could be more than double in FY09, compared to the 2008 estimated level. Gentex plans to announce additional RCD programs in 2009.

Restructuring Actions

Management reiterated its intention to work to lower costs via purchasing cost reductions, value-added value-engineering initiatives, hiring slowdowns, compensation expense reductions, and capital spending reductions that will lower depreciation and amortization expense. With volume beginning to increase again, the company has begun to hire more employees, both temporary and full-time. While cost management will likely remain tight going forward, the company will largely finish adjusting its cost structure in response to the decline in light vehicle production.

ERP System

Gentex implemented the first phase of an enterprise resource planning (“ERP”) system on July 1, 2009, in core business areas at its Zeeland, Michigan location, with the second phase of the system planned to be implemented by the end of the calendar year 2009. October 23, 2009

Potentially Severe Problems

There are none other than those discussed in other sections of this report. July 23, 2009

Long-Term Growth

The long-term growth rate projected, by only one firm, (Soliel Securities) for the next 3-5 years is 16.0%.

GNTX’s goal is to achieve double-digit topline growth. The Company has some popular new products with significant revenue growth potential for the next several years, such as auto-dimming mirrors with SmartBeam and rear camera displays, which are helping Gentex to continue to be the industry leader in these areas.

Zacks Investment Research Page 8 www.zackspro.com Despite the promising product pipeline and impressive performance of current products, the fortune of the Company is highly reliant on the cyclical nature of the global auto industry, according to the analysts. The industry to which GNTX caters is vulnerable to sudden shifts in consumer sentiment, employment, interest rates, and general economic activity. Growth in the auto industry is likely to be stagnant because of weak demand and pricing. There is continuing pricing pressure from OEMs to reduce costs. Generally, if a supplier is unable to generate sufficient cost savings to offset the customer cost reductions, its margins could be affected. The only way to get pricing power is by improving mix.

According to the analysts, the primary cause for the weakening margins is the below-targeted level capacity utilization rates and the high mix of fixed-cost automation products, along with the weak sales volumes of its largest customer (General Motors), SUVs in particular. Additionally, operational issues in other areas of the Company are leading to a decrease in margins. The analysts do not believe GNTX’s margins will recover meaningfully until utilization rates improve. However, the strong underlying demand is expected to make GNTX a long-term growth story. October 23, 2009

Upcoming Events

On January 22, 2010; GNTX is expected to announce its 4Q09 and FY09 earnings results.

Individual Analyst Opinions

POSITIVE RATINGS (16.7%)

KeyBanc – Buy ($22.00 – target price) – 10/22/09: The firm maintained a Buy rating and increased the target price to $22.00 from $20.00 based on the belief that sales should continue to outperform production in the long term, driven by RCD and SmartBeam.

NEUTRAL RATINGS (66.7%)

Soleil Securities – Hold ($18.00 – target price) – 10/21/09: The firm maintained a Hold rating and raised the target price from $13.00 to $18.00 due to higher estimated earnings and growth rate. INVESTMENT SUMMARY: The firm remains encouraged by the strong 3Q09 results, positive year-over- year comparisons, and the momentum of SmartBeam and RCD boosting Gentex’s ASPs and margins. However, the firm remains cautious about the uncertainty over automotive customer inventory levels, which GNTX believes that at some point, may need to be adjusted downward following the conclusion of government stimulus programs around the world.

Buckingham – Neutral (no target price) – 10/22/09: The firm reiterated a Neutral rating with no specified price target. INVESTMENT SUMMARY: The firm remains neutral as it believes that the stock is currently fully valued relative to the company’s future earnings. Further, the firm remains concerned about GNTX’s European exposure as it expects a modest decline in 2010 production related to pay-period from various scrappage programs as well as a negative luxury mix shift.

J.P. Morgan – Neutral ($17.00 – target price) – 10/22/09: The firm maintained a Neutral rating and raised the target price from $13.00 to $17.00. INVESTMENT SUMMARY: The firm believes that high market penetration of new products, such as Rear Camera Displays and SmartBeam as well as 2H09 auto production recoveries could play a large role in maintaining a high level of earnings growth. However, the firm remains neutral due to the valuation.

Zacks Investment Research Page 9 www.zackspro.com R W. Baird – Neutral ($18.00 – target price) – 10/22/09: The firm maintained a Neutral rating and raised the target price from $15.00 to $18.00. INVESTMENT SUMMARY: The firm believes that company has the potential for double-digit revenue growth from growing penetration over the longer term.

NEGATIVE RATINGS (16.6%)

BofA Merrill Lynch – Underperform ($13.00 – target price) – 10/21/09: The firm maintained an Underperform rating and raised the price target from $10.00 to $13.00. INVESTMENT SUMMARY: The firm believes that although Gentex is one of the few companies in auto supply coverage universe with true proprietary technology, the unit shipment growth that the Company enjoyed earlier is not sustainable.

Research Associate Neha Poddar Copy Editor Madhubanti Maitra Content Ed. Deepa Agarwal No. of brokers 6/6 reported/Total brokers Reason for Update Earnings

Zacks Investment Research Page 10 www.zackspro.com