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Gates Industrial Corp (GTES)
NYSE:GTES
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Gates Industrial
(NYSE:GTES)
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Rating:69Neutral
Price Target:
$30.00
▲(8.81% Upside)
Action:ReiteratedDate:02/14/26
GTES scores highest on financial performance, supported by improving margins and strong, consistent free cash flow, reinforced by cautiously positive 2026 guidance and ongoing deleveraging. The score is tempered by an extended technical setup (overbought signals) and a relatively expensive valuation (P/E ~29) without a dividend yield.
Positive Factors
Strong free cash flow generation
Gates consistently converts earnings into cash (FCF >$400M in 2023 and 2025 and ~92% conversion in 2025). This durable cash generation funds capex, buybacks, debt paydown and gives strategic optionality for M&A or shareholder returns over the medium term.
Improving margins and operating efficiency
Profitability has improved materially with gross margin near 40% and adjusted EBITDA margin ~21% in 2025, supported by cost actions and efficiency gains. Sustained margin expansion increases resilience to modest top‑line growth and supports stronger cash flow and returns.
Exposure to high‑growth end markets
Gates is expanding in structural, high‑growth niches: personal mobility is growing at >25% and data center business is scaling rapidly from a small base. These secular end‑market exposures diversify revenue and create multi‑year organic growth opportunities.
Negative Factors
Material absolute debt load
Although leverage trends are improving, an absolute debt load north of $2.3B and net leverage (~1.85x at year‑end 2025) leave the company sensitive to cyclical downturns and higher interest rates, which can constrain strategic flexibility during stress periods.
Revenue volatility and channel cyclicality
Top‑line has shown cyclicality and channel destocking (aftermarket declines, regional OEM softness), which undermines predictable revenue growth. Such volatility pressures working capital and complicates margin planning over the medium term.
ERP and footprint restructuring headwinds
ERP implementation and footprint optimization are front‑loaded with ~$30–$35M of transition costs and an estimated ~100bp FY margin drag. Execution risk and timing of expected benefits could delay margin expansion and temporarily depress cash flow and operating performance.
Gates Industrial (GTES) vs. SPDR S&P 500 ETF (SPY)
Market Cap
$7.00B
Dividend YieldN/A
Average Volume (3M)2.72M
Price to Earnings (P/E)28.5
Beta (1Y)1.31
Revenue Growth-0.75%
EPS Growth9.22%
CountryUS
Employees14,100
SectorIndustrials
Sector Strength72
IndustryIndustrial - Machinery
Share Statistics
EPS (TTM)0.38
Shares Outstanding253,855,700
10 Day Avg. Volume2,144,905
30 Day Avg. Volume2,718,238
Financial Highlights & Ratios
PEG Ratio0.73
Price to Book (P/B)1.69
Price to Sales (P/S)1.63
P/FCF Ratio13.89
Enterprise Value/Market Cap1.26
Enterprise Value/Revenue2.56
Enterprise Value/Gross Profit6.35
Enterprise Value/Ebitda12.43
Forecast
1Y Price Target
$31.86Price Target Upside15.56% Upside
Rating ConsensusStrong Buy
Number of Analyst Covering7
EPS Forecast (FY)1.61
Revenue Forecast (FY)$3.57B
Gates Industrial Business Overview & Revenue Model
Company DescriptionGates Industrial Corporation plc manufactures and sells engineered power transmission and fluid power solutions worldwide. It operates in two segments, Power Transmission and Fluid Power. The company offers synchronous or asynchronous belts, including V-belts, CVT belts, and Micro-V belts, as well as related components, such as sprockets, pulleys, water pumps, tensioners, or other accessories; solutions for stationary and mobile drives, engine systems, personal mobility, and vertical lifts application platforms; metal drive components; and kits for automotive replacement channels. It also provides fluid power solutions comprising stationary hydraulics, mobile hydraulics, engine systems, and other industrial application platforms; and hydraulics, including hoses, tubing, and fittings, as well as assemblies. The company serves construction, agriculture, energy and resources, automotive, transportation, mobility and recreation, consumer products, and various industrial applications, such as automated manufacturing and logistics systems. It sells its engineered products under the Gates brand. The company offers its products to replacement channel customers, as well as to original equipment manufacturers. Gates Industrial Corporation plc was founded in 1911 and is headquartered in Denver, Colorado.
How the Company Makes MoneyGates Industrial generates revenue primarily through the sale of its core products, which include power transmission belts, hydraulic hoses, and related components. The company operates on a direct sales model, reaching customers through a network of distributors and suppliers across multiple industries. Key revenue streams include OEM (original equipment manufacturer) sales, aftermarket sales for replacement parts, and custom-engineered solutions tailored to specific customer needs. Additionally, Gates benefits from strategic partnerships with other manufacturers and suppliers, which expand its market reach and product offerings. The company also invests in research and development to innovate and improve its product lines, helping to maintain a competitive edge and drive sales growth.
Gates Industrial Key Performance Indicators (KPIs)
Any
Net Sales By Segment
Breaks down total sales by business segment, providing insight into which areas are driving revenue and how the company is diversifying its income streams.
Breaks down total sales by business segment, providing insight into which areas are driving revenue and how the company is diversifying its income streams.
Data provided by:
The Fly
The FlyGates Industrial Earnings Call Summary
Earnings Call Date:Feb 12, 2026
(Q4-2025)
| % Change Since: |
Next Earnings Date:May 06, 2026
Earnings Call Sentiment Positive
The call presents a broadly positive operational and financial picture — record adjusted EBITDA and EPS, strong cash generation, lower leverage, meaningful growth in high-potential verticals (personal mobility and data center), and return of capital to shareholders. However, near-term execution risks temper enthusiasm: ERP implementation and footprint optimization will weigh on Q1 and first-half margins and revenue (including a two-business-day calendar headwind), aftermarket destocking and automotive OEM softness create regional and channel pressures, and some restructuring costs are front-loaded. Management frames 2026 as a cautious, constructive year with structural improvements that underpin confidence in medium-term margin expansion and potential M&A optionality.Q4-2025 Updates
Positive Updates
Record adjusted EPS and EBITDA
Adjusted EPS of $1.52 for FY2025, up 9% year-over-year and the top end of guidance; company achieved record adjusted EBITDA dollars and near-record adjusted EBITDA margins.
Strong Q4 profitability
Q4 adjusted EBITDA of approximately $188 million and adjusted EBITDA margin of 21.9%, up ~10 basis points year-over-year; Q4 adjusted EPS $0.38, up ~7% year-over-year.
Core sales and revenue growth
Full-year core growth of nearly 1%; Q4 sales were $856 million with total revenues up slightly above 3% (benefited from favorable foreign currency translation).
High-growth end markets — Personal Mobility and Data Center
Personal mobility exceeded 25% core growth in 2025 (28% growth in Q4) and is expected to grow high‑twenties into 2028; data center business grew ~4x vs. 2024 with orders up ~700% year-over-year (sequential orders +350% in Q4), driving a multi-year growth opportunity from a small base.
Strong cash generation and improved leverage
Full-year free cash flow conversion of 92% and Q4 conversion of 238% of adjusted net income; net leverage ratio reduced to 1.85x at year-end 2025 (down ~0.3–0.4 turns year-over-year) and over $800 million of cash on the balance sheet; S&P upgraded rating to BB from BB-.
Capital returns and financial optionality
Returned capital via repurchases (over $100 million repurchased in Q4 — ~$105 million) with ~$194 million remaining authorization; 2026 CapEx budgeted at $120 million and management expects 90%+ free cash flow conversion in 2026.
Constructive 2026 guidance and profitability targets
Initial 2026 guidance: core sales growth of 1%–4%; adjusted EBITDA guidance $775M–$835M (midpoint implies slight margin improvement year-over-year after recognizing transition costs); adjusted EPS guidance $1.52–$1.68 (midpoint ~5% growth) and stated structural initiatives (ERP, footprint optimization) expected to drive medium-term margin expansion (footprint optimization targeted to add ~$10M adjusted EBITDA in H2 2026).
Negative Updates
ERP transition and implementation costs
ERP transition (Europe) and related inefficiencies are expected to drive incremental costs of approximately $30–$35 million (all-in) and create about a 100 basis point drag on adjusted EBITDA margin for 2026; Q1 2026 especially impacted by ERP inefficiencies.
Q1 2026 near-term headwinds
First-quarter 2026 guidance factors a core sales decline of ~2% to 2.5% at the midpoint (includes a 500 basis point headwind from two fewer business days) and an anticipated adjusted EBITDA margin decline of ~140 basis points at the midpoint versus prior year.
Aftermarket destocking and channel weakness
Aftermarket sales declined ~1% in Q4 and industrial aftermarket declined mid-single digits in Fluid Power; North America core sales fell ~2.5% in Q4 due in part to distributor inventory management and difficult prior-year comparisons.
Automotive OEM pressure
Automotive OEM sales decreased in multiple regions (including declines in China), representing a partial offset to industrial and personal mobility gains and contributing to mixed end-market performance.
Regional softness and mixed end markets
East Asia & India saw a slight decrease in core sales in Q4; energy and resources was called out as a down market in 2026 assumptions; some diversified industrial and on-highway segments remain mixed.
Restructuring cash and one-time charges
FY2025 free cash flow conversion included over $30 million of cash restructuring related to footprint optimization and other restructuring (above-average spending), and additional restructuring is expected to affect near-term cash flow and margins.
Guidance conservatism amid macro uncertainty
Management emphasized a pragmatic and cautious outlook given prior 'PMI head fakes' and stated they do not anticipate a rapid recovery in 2026, resulting in conservative top-line guidance (1%–4% core growth) and a tempered margin outlook while transition costs are incurred.
Company Guidance
Gates guided 2026 core sales growth of 1%–4%, adjusted EBITDA of $775M–$835M (midpoint implying a slight margin improvement) and adjusted EPS of $1.52–$1.68 (midpoint ≈ +5% vs. 2025) assuming no incremental repurchases (≈$194M authorization remaining); management budgeted $120M of CapEx, expects >90% free‑cash‑flow conversion despite above‑average restructuring, and flagged a ~100‑bp FY drag to adjusted EBITDA margin from ERP and footprint actions (total ERP/transition costs ~$30–$35M, roughly $20M hitting EBITDA in H1 and $10–$15M add‑backs), with footprint optimization expected to add ~ $10M of adjusted EBITDA in H2 (and another ~$10M in 2027). Q1 revenue was guided to $845M–$875M (core -2% to -2.5% at the midpoint, including a ~500‑bp headwind from two fewer business days plus ERP inefficiencies) and Q1 adjusted EBITDA margin is expected to be down ~140 bps at the midpoint; FX is expected to provide ~ $0.04/ share of EPS benefit (≈125 bps translation benefit full year, weighted to H1), operating performance to contribute ≈ $0.03/share, and tax/interest/share‑count/other ≈ $0.01/share. Net leverage was 1.85x at year‑end 2025 with >$800M cash on the balance sheet.Gates Industrial Financial Statement Overview
Summary
Fundamentals are solid, led by strong and consistently positive free cash flow (notably >$400M in 2023 and 2025) and improving operating efficiency (EBITDA margin rising to ~21% in 2025). Offsets include revenue volatility and a still-material absolute debt load (>$2.3B) despite improving leverage trends.Income Statement
Revenue has been broadly stable since 2021 with some volatility (down in 2024, modest rebound in 2025). Profitability is solid for the group, with gross margin near ~40% and EBITDA margin improving to ~21% in 2025 versus ~17% in 2022, showing better operating efficiency. Net margin improved to ~7.3% in 2025 from ~5.7% in 2024, but remains below the 2021 peak (~8.6%), indicating earnings power is not consistently compounding year-to-year.73
Positive
Balance Sheet
Leverage is meaningful but improving: debt relative to equity has trended down (about 1.01x in 2020 to ~0.71x in 2025) alongside higher equity. Returns on equity are steady in the mid-single-digits to mid-high single digits (~7.5% in 2025), which is respectable but not standout for a machinery name. The key weakness is still the absolute debt load (over $2.3B in 2025), leaving sensitivity to cyclical downturns and higher rates, even as the balance sheet trajectory is moving in the right direction.66
Positive
Cash Flow
Cash generation is a clear strength: free cash flow is consistently positive and strong in 2023 and 2025 (both ~>$400M), with a notable step-up in 2025 versus 2024. Free cash flow runs at roughly ~0.78–0.85x of net income across most years, suggesting earnings quality is generally supported by cash. The main drawback is that operating cash flow is not consistently high relative to EBITDA (coverage ratio stays below 1.0 across the period), implying working-capital or other cash timing needs can dampen cash conversion in weaker years (e.g., 2022).78
Positive
| Breakdown | Dec 2025 | Dec 2024 | Dec 2023 | Dec 2022 | Dec 2021 |
|---|---|---|---|---|---|
Income Statement | |||||
| Total Revenue | 3.44B | 3.41B | 3.57B | 3.55B | 3.47B |
| Gross Profit | 1.39B | 1.36B | 1.36B | 1.25B | 1.34B |
| EBITDA | 742.10M | 677.60M | 656.90M | 614.40M | 705.80M |
| Net Income | 251.40M | 194.90M | 232.90M | 220.80M | 297.10M |
Balance Sheet | |||||
| Total Assets | 7.15B | 6.79B | 7.25B | 7.19B | 7.53B |
| Cash, Cash Equivalents and Short-Term Investments | 812.10M | 682.00M | 720.60M | 581.40M | 660.90M |
| Total Debt | 2.51B | 2.48B | 2.56B | 2.61B | 2.71B |
| Total Liabilities | 3.46B | 3.45B | 3.71B | 3.75B | 4.05B |
| Stockholders Equity | 3.33B | 3.02B | 3.22B | 3.11B | 3.10B |
Cash Flow | |||||
| Free Cash Flow | 404.90M | 296.50M | 409.60M | 178.80M | 295.40M |
| Operating Cash Flow | 478.10M | 379.60M | 481.00M | 265.80M | 382.40M |
| Investing Cash Flow | -119.00M | -104.40M | -81.80M | -90.70M | -86.00M |
| Financing Cash Flow | -251.10M | -286.70M | -258.30M | -253.10M | -148.60M |
Gates Industrial Technical Analysis
Positive
27.57
Price Trends
24.09
Positive
23.66
Positive
23.77
Positive
Market Momentum
1.08
Positive
63.53
Neutral
37.06
Neutral
Evaluating momentum and price trends is crucial in stock analysis to make informed investment decisions. For GTES, the sentiment is Positive. The current price of 27.57 is above the 20-day moving average (MA) of 26.62, above the 50-day MA of 24.09, and above the 200-day MA of 23.77, indicating a bullish trend. The MACD of 1.08 indicates Positive momentum. The RSI at 63.53 is Neutral, neither overbought nor oversold. The STOCH value of 37.06 is Neutral, not indicating any strong overbought or oversold conditions. Overall, these indicators collectively point to a Positive sentiment for GTES.
Gates Industrial Risk Analysis
Gates Industrial disclosed 41 risk factors in its most recent earnings report. Gates Industrial reported the most risks in the "Finance & Corporate" category.
Finance & Corporate - Financial and accounting risks. Risks related to the execution of corporate activity and strategy
Latest Risks Added 0 New Risks
Gates Industrial Peers Comparison
UnderperformOutperform
Sector (63)
Name | Overall Rating | Market Cap | P/E Ratio | ROE | Dividend Yield | Revenue Growth | EPS Growth |
|---|---|---|---|---|---|---|---|
76 Outperform | $11.32B | 45.03 | 13.56% | ― | 12.60% | 24.02% | |
73 Outperform | $11.27B | 33.49 | 16.49% | 1.17% | 3.19% | 69.89% | |
71 Outperform | $5.50B | 135.39 | 5.80% | 0.56% | 6.44% | 101.24% | |
69 Neutral | $7.00B | 28.51 | 7.93% | ― | -0.75% | 9.22% | |
66 Neutral | $4.85B | 39.05 | 12.02% | 0.26% | 14.87% | 15.63% | |
63 Neutral | $10.79B | 15.43 | 7.44% | 2.01% | 2.89% | -14.66% | |
63 Neutral | $5.41B | 197.17 | 1.71% | ― | 7.81% | ― |
* Industrials Sector Average
GTES
Gates Industrial
27.57
7.57
37.85%
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Glossary
BuyA stock rated as a "Buy" is expected to perform better than the overall market or a specific benchmark over the near-to-medium term. This rating suggests the stock is likely to deliver higher returns compared to other stocks in the same sector or market index. Note: This is not investment advice; please consult a financial advisor before making investment decisions.
HoldA stock rated as a "Hold" is expected to perform in line with the overall market or a specific benchmark. This rating indicates that the stock is neither particularly compelling nor unfavorable for investment. Note: This is not investment advice; please consult a financial advisor before making investment decisions.
SellA stock rated as a "Sell" is expected to perform worse than the overall market or a specific benchmark over the near-to-medium term. This rating suggests the stock may deliver lower returns compared to other stocks in the same sector or market index. Note: This is not investment advice; please consult a financial advisor before making investment decisions.
Disclaimer
This AI Analyst Stock Report is automatically generated by our AI systems using advanced algorithms and publicly available financial, technical, and market data. While the information provided aims to be accurate and insightful, it is intended for informational purposes only and should not be considered financial advice. Any content created by an AI (Artificial Intelligence) system may contain inaccuracies and/or contain errors. Investing in stocks carries inherent risks, and past performance is not indicative of future results. This report does not account for your personal financial circumstances, objectives, or risk tolerance. Always conduct your own research or consult with a qualified financial advisor before making investment decisions. The analysis and recommendations provided are based on historical and current data and may not fully reflect future market conditions or unexpected developments. Neither the creators of this report nor its affiliated entities guarantee the accuracy, completeness, or reliability of the information presented. Use this report at your own discretion and risk.