Garrett Motion (GTX): Record Margin, Raised Guide — and the Stock Fell. Is GTX a Buy?

Garrett Motion Inc. (GTX) Q2 2026 — Reported pre-market July 29 (calendar Q2 ended June 30, 2026). Net sales $976M (+7% reported, +5% cc) vs ~$963M expected; diluted EPS $0.53 vs ~$0.46 (+26%); adjusted EBIT margin a record 15.6%, up 200bps; FY26 guidance RAISED on every line. The stock fell 3.81% to $28.78 on the print, then rose 7.75% the next session to close the week at $31.15. The line nobody printed: 52% of Garrett's revenue is Europe and the US is 18% — and the US shrank. Everyone models GTX as an American auto supplier. It is a European one with an Asian growth engine and a data-centre genset business no model carries. THE CALL: AVOID (3/5, GREAT QUARTER, THE RE-RATING ALREADY HAPPENED) — base-case value ~$24.0 vs ~$31.15 today. KEY METRICS: - CALL: AVOID 3/5 — fair value ~$24 vs $31.15 (-23%). Owner-earnings DCF: FY26E adj. FCF mid $430M less ~$28M stock comp = $402M; +4%/yr for 5 years then 1%, 0.5% terminal at 9.0% = $23.35/sh (EV $5.59B less $1.228B net debt / 186.8M shares). Bear $16.07, bull $34.09, prob-weighted $24.21. Note the BULL case at 8.5% is $37.36 — the Street's $38 IS our bull case. - STREET: Buy — 4 buy / 3 hold / 2 sell (9 analysts). Average target $38 ($36-$42), +22%. Deutsche Bank went to $36 on July 30, the day after the print, from $14 in October. Stifel went $17 (Oct) to $21 (Dec) to $36 (May). RBC is high at $42. Every revision came AFTER the price moved. We DIFFER and are far more CAUTIOUS. - THE QUARTER WAS A RECORD: net sales $976M (+7% reported, +5% cc) vs ~$963M expected. Gross margin 21.7% vs 19.8%. Net income $101M (10.3%). Adjusted EBIT $152M at a RECORD 15.6% margin, +200bps. Diluted EPS $0.53 vs $0.42, +26%. - GUIDING TO GROW WHILE THE MARKET SHRINKS: FY26 guidance assumes light-vehicle production DOWN 2-4% and ~19% BEV penetration — yet Garrett guides +1% to +7% cc growth. Every line raised: sales $3.7-3.9B (was $3.6-3.9B), net income $330-360M (was $300-360M), adj. EBIT $560-600M (was $520-600M), adj. FCF $385-475M (was $355-475M). - GARRETT IS A EUROPEAN COMPANY: Europe $509M or 52% of revenue, Asia $261M or 27%, the US just $174M or 18% — and the US FELL from $178M. FX added 2 of the 7 points of reported growth. - THE MIX RANKING IS BACKWARDS FROM THE NARRATIVE: commercial vehicle/industrial $188M +10% cc (fastest), aftermarket $119M +7% cc (after FALLING 10% a year ago), diesel $235M +6% cc — faster than gasoline at +3% cc ($416M, 43% of sales). The 10-Q credits industrial growth to North America gensets FOR DATA CENTERS; Q2 brought a major MEG award, SOP 2027. - CASH DID NOT FOLLOW PROFIT: adjusted EBIT +23% but operating cash flow FELL 8% to $145M from $158M on $84M of working-capital drag. In Garrett's favour, its adjusted FCF definition SUBTRACTS the $47M YTD factoring benefit — reported H1 FCF was $197M and it published $171M. - BALANCE SHEET AND BUYBACK: the -$675M deficit is a Chapter-11 fresh-start plus $655M treasury-stock artifact, not distress. Net debt $1,228M = 1.73x FY26E EBITDA; adj. EBIT covers interest 5.9x. Basic shares fell 7.6% YoY, so ~40% of the 26% EPS growth is the share count, with only $135M of authorisation left. At $31.15 that is 10.0x EV/EBITDA vs auto-supplier peers at 4-6x, after a 142% twelve-month run. What to watch: Bullish: commercial vehicle + industrial + aftermarket above 35% of revenue with the data-centre genset business scaling into its 2027 SOP. Bearish: gasoline turbo revenue declining at constant currency two quarters running, or FY26 adjusted FCF below $400M. Also on YouTube: @ChargedAlpha DISCLAIMER: For informational and educational purposes only. Not financial advice. Do your own research before any investment decision.