STRT — Strattec Security Corporation · 2026-09-04 · Verdict: IDEA · Conviction 3
Price $73.07 (close 2026-09-02) · Mkt cap $291M · EV $183M · EV/EBIT 6.9x · FCF yield 13.4% · Net cash $108.2M · ADV ~$7.9M Sources read: 10-K 2026-08-28 (Items 1, 1A, 7, notes), 10-Q 2026-05-08, DEF 14A 2025-09-11, 8-Ks 2026-04-30, 2026-05-07, 2026-05-28, 2026-08-25, Form 4s (12m), earnings press release 2026-08-25 (no call transcript filed; the Q3 investor deck in the 2026-05-07 8-K is the closest thing to prepared remarks).
1. What the business actually does
Strattec makes the parts that let you into a car and hold it shut: Permission (locks, keys, fobs, passive entry and start, ignition housings), Motion (power sliding doors, tailgates, liftgates) and Hold (latches) (10-K 2026, Item 1). Door handles come through a majority owned joint venture with ADAC Automotive. FY26 sales by product: door handles and trim $147.3M (25%), power access $141.1M (24%), keys and locksets $118.7M (21%), latches $71.7M (12%), user interface controls $49.7M (9%), aftermarket $40.1M (7%) (10-K 2026, Note 14). Content sits on more than 90 nameplates, from F-Series to Escalade to Freightliner. One segment, 2,654 employees, 2,252 in Mexico. Parts are safety critical and powertrain agnostic, designed three to five years before production, and the incumbent normally keeps the platform for its five to seven year life.
2. Why it is mispriced — the edge case
Two things stack. First, structural neglect: 3.99 million shares out, a $291M cap, outsourced investor relations, and no sell-side estimates returned by any data source I checked. Second, a GAAP optical mess in the quarter that just printed. Q4 FY26 GAAP EPS was $0.95 against $2.01 a year earlier, but adjusted EPS was $2.06 versus $2.06, exactly flat (8-K 2026-08-25, EX-99.1). The gap is almost entirely a $6.0M Q4 tax charge on $9.6M of pretax income, driven by a $2.9M increase in reserves for uncertain tax positions and a $1.0M valuation allowance (10-K 2026, Item 7). A screen reading GAAP EPS sees a 53% earnings collapse; a reader of the reconciliation sees full-year adjusted EBITDA up 15.3% to $50.5M. Nobody is paid to explain the difference. The sellers are indifferent rather than wrong: holders trimming a name whose GAAP print looked bad, in a stock where roughly $8M of daily dollar volume keeps real institutions out anyway.
3. Unit economics and growth
FY26 sales $579.4M, up 3%, from $11.0M of pricing including $2.6M of tariff surcharges plus $3.3M of net volume, offset by $9.5M of cancelled customer EV programs (10-K 2026, Item 7). Gross margin rose from 15.0% to 16.5% despite a $6.5M currency headwind, helped by $5.4M of restructuring savings and a 7% headcount cut. Operating margin 4.6% versus 4.0%. Adjusted EBITDA $50.5M, 8.7% of sales, versus $43.8M and 7.7% (8-K 2026-08-25). Free cash flow was $39.0M ($46.3M operating less $7.3M capex). Screened ROIC of 16.1% is flattered by an old asset base: net PP&E is $69.8M on $579M of sales.
Concentration is the central fact: GM 27%, Ford 21%, Stellantis 16%, 64% combined (10-K 2026, Item 1A). Management expects those three to decline 5% to 6% in FY27 against a 2% to 3% drop in North American production (10-K 2026, Item 7). Pricing power exists but is defensive, shown by tariff surcharge recovery and $11.0M of price in a down market. Manufacturing is in Mexico, so peso appreciation is a direct cost and the July 2026 USMCA joint review, which the United States declined to extend on current terms, is unresolved (10-K 2026, Item 1A).
The VAST China joint venture is gone from the disclosure. The FY26 10-K contains no reference to VAST, no equity method investment and no China joint venture; the only one disclosed is ADAC-Strattec. Treat that option as already exercised or written off, not as a hidden asset.
4. Balance sheet and capital allocation
$108.2M cash, zero debt, undrawn $40M and $10M revolvers to October 2028 (10-K 2026, Item 7). Net cash is 37% of market cap and about four times EBIT. Two years of cash flow retired all borrowings, and on 2026-04-30 the company released its guaranty and liens on the ADAC-Strattec facility, so the JV now borrows alone (8-K 2026-04-30). On 2026-05-28 the board replaced the dormant 1996 authorization with a fresh $40M program, 13.7% of the cap, unused at year end (8-K 2026-05-28); Q4 repurchases were 110,269 shares at $67.10, over 2% of shares out. Institutions hold 74.8%, insiders 3.9%, one vote per share (DEF 14A 2025). Three insiders bought in the open market in May 2026, including CFO Pauli 2,000 shares at $62.53 and CEO Slater 1,598 shares near $62.60, against one 3,000 share sale in November 2025 (Form 4s, 2026-05-14 and 2025-11-19). Small sums, but the direction and the timing near the lows are right.
5. Management: what they said versus what they did
CEO Jennifer Slater arrived July 2024 from Sensata and Clarios (10-K 2026, Item 1), so this is a two year old turnaround. In May she guided Q4 revenue down 3% to 4%; it came in flat at $151.8M versus $152.0M, described as better than expected (Q3 deck 2026-05-07; 8-K 2026-08-25). Medium term targets are explicit: gross margin 18% to 20% at a five year average peso, SAE 10% to 11% of revenue, cash generation about $10M a quarter (Q3 deck 2026-05-07). FY26 actuals were 16.5% and 11.9%, so both are unmet and SAE moved the wrong way. She is candid: "we have much work to do to secure future OEM vehicle platforms" (8-K 2026-08-25).
6. Valuation
Reverse DCF: at $73.07 the $183M enterprise value is about 7 times FY26 adjusted EBIT of roughly $35M (adjusted EBITDA less $15.1M depreciation) after a 28% tax, so the price implies zero revenue growth in perpetuity, no progress toward the 18% to 20% gross margin target, and no value for the untouched $40M buyback.
Bear ($52): FY27 customer volumes fall 6%, revenue $540M, gross margin reverts to 15% on peso strength, SAE 11.5%, EBIT $19M, 5x gives $95M EV plus $105M net cash. Base ($95): revenue holds near $570M, gross margin 17.5%, SAE 11%, EBIT $37M, 7x gives $259M EV plus $110M net cash on 3.9M shares. Bull ($155): FY29 revenue $620M on 2029 and 2030 wins, gross margin 19%, SAE 10.5%, EBIT $53M, 8x gives $424M EV plus $150M net cash on 3.7M shares. Weighted 25/50/25 gives about $99, roughly 36% above the price. The asymmetry comes from the balance sheet, not the multiple.
7. Catalysts and timeline
Q1 FY27 results in late October 2026, the first read on the 5% to 6% customer decline. First repurchases under the $40M authorization, visible in a Q1 or Q2 10-Q. USMCA outcome. Any award on a model year 2029 or 2030 platform, or a first non Detroit Three North American customer. Peso weakness, which is pure margin.
8. Risks and pre-registered kill criteria
Risks: 64% of sales to three customers all losing share; peso appreciation; tariffs and USMCA; a five to seven year lag before new business replaces cancelled EV programs; $108M of cash in the hands of a team developing an M&A strategy.
- Consolidated gross margin below 15.0% for two consecutive quarters.
- An 8-K or 10-Q disclosing loss or cancellation of programs worth more than $25M of annual sales.
- An acquisition larger than $75M, or net cash below $60M without a matching reduction in share count.
- No shares repurchased under the $40M authorization by the Q2 FY27 filing in February 2027, or insider net open market selling above $1M in any six month window.
9. Verdict and one-paragraph summary
IDEA, conviction 3. Strattec is a 4 million share, $291M automotive access supplier holding $108M of net cash, 37% of its market value, that generated $39M of free cash flow last year, so you pay about $183M, roughly 7 times normalized after-tax operating profit, for the operating business. The headline Q4 looked awful, GAAP EPS $0.95 versus $2.01, but that was a one-time $2.9M uncertain tax reserve plus a $1.0M valuation allowance; adjusted EPS was flat at $2.06 and full-year adjusted EBITDA rose 15% to $50.5M as a two year old CEO took gross margin from 15.0% to 16.5% with a 7% headcount cut, and with no sell-side coverage nobody bridges that gap for the market. The bet is that management gets partway from 16.5% toward its stated 18% to 20% gross margin while the board retires 13.7% of the shares under the new $40M authorization, with the cash cushioning the downside and the price already assuming no growth and no margin improvement ever. It is a 3 and not a 5 because 64% of sales go to GM, Ford and Stellantis, whose production management expects to fall 5% to 6% next year, and the replacement business does not start until model year 2029 at the earliest.
Research for discussion, not investment advice. Positions and sizing are the reader's decision.