Garmin (GRMN – Analyst Report) designs, manufactures, and markets navigation and communications equipment for a variety of markets, including aviation, marine, automotive, cellular, OEM, and general recreation.Their product line also includes the hot markets of fitness devices and action cameras. Garmin was founded in 1990, is based in Switzerland and has over 11,000 employees. The stock is a Zacks Rank #1 (Strong Buy) and todays Bull of the Day.
Garmin has a market cap of $9.5 billion with a forward PE of 18. The stock sports Zacks Style Scores of “C” in both Value and Momentum, but “B” in Growth. Due to the amount of competition in the sector, Garmin sits in an industry that is ranked 159 out of 265 (Bottom 40%) in the Zacks Industry Rank. However, recent earnings are showing that the company isn’t fazed by the competition.
Garmin released its third quarter earnings in late October with a 41% beat. The company reported $0.75 verse the $0.53 expected. Revenue came in at $722 million verse the $678 million expected. Operating margins came in at 22.1% verse the 18.5% year over year.
All segments were impressive except the auto segment. This is concerning, but shows that the company is gaining traction in other areas.
– Outdoor segment revenue +28% y/y
– Fitness segment revenue +32% y/y
– Aviation segment revenue +14% y/y
– Marine segment revenue +12% y/y
– Automotive/Mobile segment revenue down 21% y/y
Raising guidance for Q3
In addition to the earnings beat, the company raised guidance for fiscal year 2016. They now see $2.62 verse the $2.52 expected. Revenue is expected at $2.95 billion verse the $2.91 billion expected.
CEO Clifton Pemble went on to say on the call: “We are maintaining our focus on innovation, diversification and market expansion to drive further growth opportunities in all business segments.”
Traders liked the numbers at first and the stock jumped almost 10% on the earnings beat. However, the stock has since sold off to pre-earnings levels. Those that weren’t in the stock and missed the move can now take advantage at these levels again as analysts are raising estimates for 2017.
While the current quarter is looking down and next quarter looking flat, 2017 looks good to analysts. Estimates have come up over 3% over the last 7 days, going from $2.57 to $2.66.
Part of the reason for the selling could be the short interest in the stock. Short sellers are focusing in on the automotive segment and trying to push the stock lower. This has put Garmin’s short ratio at 14, with 12% of the float short. A couple good earnings reports from here and the shorts could have to take the stock higher when covering their position.
Garmin has been a volatile stock. Recent earnings, guidance and revisions higher should bring investors in to buy the post-earnings dip. A run at all-time highs over $60 is very possible for 2017 if they continue to outperform their expectations.
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