Take a Spin in Harman

This column was originally published on RealMoney on Nov. 29 at 11:00 a.m. EST. It's being republished as a bonus for TheStreet.com readers.

With strong secular tailwinds, Harman International(HAR) represents an attractive opportunity for investors to cash in on the transformation of cars into giant gadgets and living rooms into movie theaters.

The company recently reported a very strong September quarter (the fiscal year ends in June), led by earnings of 79 cents a share, a 65% year-over-year increase, on $755 million in revenue, a 9% year-over-year boost.

Though the upside was largely driven by margin gains -- meaning future EPS growth is unlikely to match this torrid rate -- Harman should have several years of 20%-plus earnings growth ahead of it as the company executes its growth initiatives on the automotive side and continues to make inroads into consumers' living rooms.

Revenue growth was not so hot in the quarter, but management has guided for 10%-12% growth in fiscal 2006 and 2007, accelerating to the 19%-20% range in 2008. In addition, the company has indicated that its 2006 automotive backlog is already completely full and that it has 85% of the business required to satisfy its 2008 automotive plans.

Also on the automotive side, which accounts for 69% of Harman's revenue, the company recently announced it is finalizing a $250 million contract with PSA Peugeot Citroen, the world's sixth-largest auto manufacturer, for the next-generation "Infotainment Systems." That deal begins in 2008, and Harman also has deals in place to supply these systems for Mercedes, BMW, Chrysler, Audi, Porsche and Hyundai. Also, the company has been awarded installation rights to all Audi platforms beginning in 2008, which could be worth as much as $350 million in annual revenue, according to Bear Stearns.

The Infotainment Systems integrate all audio and video functions, including navigation, DVD playback, audio, hands-free telephone and Internet access, into one unit. Car manufacturers are being forced to offer these kinds of systems or face the risk of losing key high-end customers, who are becoming increasingly accustomed to seeing state-of-the-art electronics gear in new cars.