Garmin Ltd . (NASDAQ:) is a very innovative company that has performed well over the past several years. We’re neutral on the stock.
Garmin was a superstar in the ’90s and 2000s with its GPS products. The introduction of smartphones quickly began to put pressure on the company, and many investors feared that it might never recover.
However, Garmin did recover, and returned to consistent revenue growth in 2016. Not only that, but revenue growth has also been accelerating. (See GRMN stock charts on TipRanks)
Although the explosive growth seen recently from Garmin is skewed by COVID-19 comparables, the company had begun seeing double-digit growth in 2019. Garmin operates in five segments: Fitness, Outdoors, Aviation, Marine, and Automotive.
Garmin is popular for its smartwatches, and some investors may believe that the company doesn’t have a moat because it competes with the likes of Apple (NASDAQ:), and others. However, Garmin distinguishes itself by providing extra features that are targeted at sports enthusiasts.
The company makes more that just smartwatches. For example, the Garmin inReach is a handheld device that allows hikers to experience the outdoors safely. In the event of an emergency, a rescue team and family members can be contacted through the use of satellites. This is important because there tends to be little cell coverage in forests.
However, we believe that Garmin’s ingenuity really shines in its Aviation, and Marine segments.
Garmin’s Aviation and Marine segments are very interesting to us, and demonstrate just how innovative the company really is. As a result, we think these segments can be a strong source of growth going forward.
Let’s begin with Aviation. Garmin Autoland is the company’s new emergency feature that can detect if a pilot is incapacitated. In such a situation, the system sends out an emergency signal, selects the best airport for landing (considering runway length, distance, fuel range, and other factors), announces the situation to passengers, and lands the plane autonomously.
Autoland was awarded the prestigious Robert J. Collier trophy as the year’s greatest achievement in aeronautics and astronautics. This feature is currently offered in the following planes: TBM 940 from Daher, SF from Cirrus, and M600 from Piper.
Like the Aviation segment, Garmin’s Marine segment also offers an autopilot system that can be connected to a compatible Garmin watch.
However, the reason we see the Marine segment as an important growth catalyst is that boating, in general, is seeing strong momentum. Boatbuilders are seeing backlogs into 2022, and close to 2023. This has resulted in Garmin raising guidance from 15% to 27% growth for the Marine segment.
Garmin is seeing very strong demand across all segments. As a result, it is planning to open another facility in the fall which would double its current capacity. This positions the company to continue growing and meet demand faster.
Garmin operates in very competitive businesses, and although it doesn’t have a single competitor competing in all of its segments, it does have strong competitors in each segment. This includes Apple, L3Harris (LHX), Navico, and Honeywell (NASDAQ:), to name a few.
In addition, there is some valuation risk, since the company is trading above the fair value of analyst estimates. However, Garmin has a very good track record of beating analyst expectations, and may in fact be able to justify its current valuation.
Wall Street’s Take
Turning to Wall Street, Garmin has a Moderate Buy consensus rating, based on two Buys, three Holds and zero Sells assigned in the last three months. The average Garmin price target of $167 implies 5.2% downside potential.
Garmin has proven that it has the ability to adapt to changing market conditions, not only to survive but also to thrive.
If it can sustain double-digit growth going forward, then the stock will continue to perform well. However, due to the uncertainties that still surround COVID-19, as well as the potentially stretched valuation, we will be staying on the sidelines for now.
Disclosure: On the date of publication, StockBros Research did not have any positions in the securities mentioned in this article.
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