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|Garmin Ltd. |(GRMN-NASDAQ) |$59.29 |

Note: This report contains substantially new material. Subsequent reports will have new or revised material highlighted.

Reason for Report: 4Q17 Earnings Update

Prev. Ed.: Nov 29, 2017: 3Q17 Earnings Update

Firms’ Recommendations: Neutral: 55.6% (5 firms); Positive: 22.2% (2 firms); Negative: 22.2% (2)

Prev. Ed: 7, 2, 2

Firms’ Target Price: $58.60 (↑$3.00 from last edition; 5 firms) Firms’ Avg. Expected Return: 2%

Note: A flash update was done on Feb 21, 2018 (4Q17 Earnings Update)

Portfolio Manager Executive Summary

Garmin Ltd. (GRMN) is a worldwide provider of navigation, communications and information devices, most of which are enabled by the global positioning system (GPS) technology.

The analysts believe that the following factors should be taken into consideration before investing in the stock:

• Garmin is the largest supplier of personal navigation devices (PND) in the U.S. market, with roughly 60% market share. It has a market share of over 20% in the European market.

• Garmin’s superior design, functionality, quality, reliability, customer service and availability have contributed to brand building over the last few years.

• Competition is fierce from its peers such as TomTom, Magellan and Mio Technology.

• Garmin generates significant cash from operations, pays an attractive dividend, makes strategic acquisitions and holds a strong balance sheet.

Competition: Garmin faces significant competition in the GPS market from a number of players such as Nokia, TomTom, Cobra, Lowrance, Navman, Raymarine, Mitac, Honeywell and PalmOne.

The analysts believe that the exit of smaller competitors from the PND business is benefiting Garmin. Its main competitor provides services at a lower price. Hence, unit growth and average selling price (ASP) for PNDs will remain under pressure.

Analysts’ Opinions: Of the 9 analysts in the Digest group covering the stock, 55.6% were cautious, 22.2% were positive and 22.2% were negative on the stock. Target prices provided by the analysts range from a low of $55 to a high of $61, with the average being $58.60. Most of the analysts used P/E multiples or DCF or sum of the parts analysis to arrive at the target prices.

Cautious (Neutral or equivalent rating – 55.6% or 5 analysts): The analysts are cautious owing to stiff competition from smartphones which are hurting Garmin’s PND sales. On the brighter side, pricing appears to have stabilized and there are signs that the sales decline is flattening. However, the auto/PND segment still comprises a major chunk of the revenues, partially offsetting growth elsewhere. Additionally, there is intense competition from Apple, Alphabet and others for Garmin’s fast-growing Vivofit segment. However, Garmin’s investments toward brand building and R&D cost cutting initiatives, operational improvement well-established OEM, distribution and retail relationships are expected to develop its prospects and maintain competitiveness in the market. Analysts are impressed with Garmin’s strong balance sheet and absence of debt.

Bullish (Positive or equivalent rating – 22.2% or 2 analysts): The analysts are bullish on Garmin’s strong execution in business, manufacturing, and marketing across all its markets. The company has several segments with the potential to drive total revenue. Specifically, aviation and outdoor is an area where the company is doing well driven by new products. Furthermore, the company’s strategy of increasingly targeting the Original Equipment Manufacturer (OEM) segment with its latest offerings ensures more stable revenues and steadier pricing.

Bearish (Negative or equivalent rating – 22.2% or 2 analysts): The analyst is bearish on Garmin’s growth prospects because of frequent technological developments and changing customer requirement. Revenues may be affected if consumer confidence and discretionary spending slow down and the company fails to respond promptly to the changing market conditions.

Moreover, Garmin faces stiff competition in terms of distribution. Failure to maintain favorable terms with dealers and distributors might lead to a disruption in its logistics channel by competitors and in turn a decline in sales.

General Outlook: According to the analysts, the global aviation, fitness and GPS-enabled equipment market is expected to expand over the next several years, despite severe competition. The company’s growth prospects will increase if it wins significant auto OEM contracts. The company’s success is attributable to demand, acceptance and development of future products.

Apr 11, 2018

Overview

Based in Olathe, KS, Garmin Ltd., along with its subsidiaries, is engaged in the designing, manufacturing and marketing of GPS-enabled navigation, communications and information products worldwide. It operates in four segments — The Aviation segment provides the panel-mounted product line that includes GPS-enabled navigation systems, very high frequency (VHF) communications transmitters/receivers, multifunction displays and traditional VHF navigation receivers. The Automotive/Mobile segment offers a range of automotive navigation products, as well as a variety of products and applications designed for the mobile GPS market. The Outdoor/Fitness segment provides GPS-enabled handheld products for outdoor activities and training assistants for athletic pursuits. The Marine segment offers network products and multifunction displays, fixed-mount GPS/chart plotter products and sounder products. The company also develops web-based applications for GPS devices and operates a website, . For more information about the company, please visit its website at .

The analysts have identified the following issues for evaluating the investment merits of Garmin:

|Key Positive Arguments |Key Negative Arguments |

|Established Leadership Position: Garmin enjoys a strong global market |Price Competition: Aggressive price competition in the PND market is |

|share and holds a large portion of the overall GPS market. |likely to result in lower margins. |

|Global Presence: The company sells its products worldwide and has key |Highly Competitive Industry: Garmin faces significant competition in the |

|distribution, research and production facilities located in the Americas,|GPS market from a number of players such as Nokia, Lowrance, Tom Tom, |

|Europe and Asia. |Navman, Raymarine and Mitac,. |

|Solid growth potential: The company’s fitness and aviation segments have |Consumer Spending: A significant slowdown in discretionary spending or |

|been growing at a decent rate. These segments are expected to be the |consumer confidence could affect the company’s revenues. |

|major revenue drivers in the near future. |Mapping software: Dependency on third parties like Nokia for its mapping |

|R&D Leader: The company's strong cash flow from operations enable |software limits Garmin’s operational flexibility. |

|self-funding of R&D and marketing initiatives. |Foreign Currency Translation: Garmin incurs a foreign currency gain or |

|Financial Position: The company has a strong balance sheet with no debt. |loss each quarter, depending on the New Taiwan Dollar/U.S. Dollar |

| |exchange rate. |

Note: The company’s fiscal year coincides with the calendar year.

Apr 11, 2018

Long-Term Growth

Garmin has a strong global market share. In addition, the company has well-established OEM, distribution and retail relationships with the likes of Best Buy, Circuit City, Wal-Mart, Cessna, Piper and Mopar.

Per analysts, growth prospects for Garmin abound as the company holds a significant share of the North American market and is expanding its presence in Europe and Asia in the PND segment. However, rapidly rising volumes are being tempered by a slowdown in ASPs (which is affecting margins). Nevertheless, most of the analysts appreciate the company’s focus on volume growth over pricing. Volumes will continue to grow rapidly in the next couple of years, given higher adoption rates and the increasing popularity of GPS systems, coupled with Garmin’s aggressive new product portfolio. Margins and ASPs, however, will continue to decrease, as analysts note intense competition, especially in Europe, where the PND market is currently underpenetrated.

Management stated that it will maintain its focus on new opportunities, improvement and expansion of distribution systems throughout Europe, and advertising to enhance awareness of the Garmin brand. The company believes, within the next 5–10 years, the automotive navigation market could migrate toward in-dash navigation systems at the expense of portable navigation solutions.

Over the long term, Garmin will face the risk of competition from the auto OEM market where it has limited participation. So the company plans to increase its foothold in OEM by launching a range of products including chartplotters, radar, sonar, autopilots and audio systems.

The company is also focusing on the aviation segment with persistent development of G3000 and G5000 platforms with OEM associates. This segment has grown considerably over the past few quarters due to rise in aircraft certifications and purchases. Thus, this segment is expected to augment Garmin’s market share in the long run. The company wants to discover off market and commercial opportunities within the military and government sector and also create unique technologies to benefit from opportunities created by the Federal Aviation Administration’s (FAA) conversion of the National Airspace System from a ground-based system of air traffic control to a satellite-based system of air traffic management.

The company has ventured into the smartphone market with Nuvifone, which is yet to gain traction. This market is a concern for the company as it faces stiff competition from revamped navigation solutions by Google and Nokia.

In the long term, the company aims to improve user experience by providing advanced products in the market. This will help it to maintain its customer base as well as attract new customers and boost operating margin.

Apr 11, 2018

Target Price/Valuation

Provided below is a summary of the valuation and ratings as compiled by Zacks Research Digest:

|Rating Distribution |

|Positive |22.2% |

|Neutral |55.6%↑ |

|Negative |22.2%↑ |

|Maximum Target Price |$61.00↑ |

|Minimum Target Price |$55.00↑ |

|Avg. Target Price |$58.60↑ |

|No. of Analysts with Target Price/Total |5/9 |

Risks to the price target include economic fluctuations, increasing competition in different markets, slowdown in consumer confidence and discretionary spending, limited growth prospect and intensifying competition in the PND market and a high tax rate.

Recent Events

On Feb 21, 2017, Garmin reported 4Q17 results. Highlights are as follows:

▪ Revenues were $888 million, up 19.6% sequentially and 3.2% from the prior-year quarter.

▪ GAAP earnings per share were $0.73 compared with $0.72 in 4Q16.

Revenues

Garmin’s fourth-quarter revenues of $888 million beat the Zacks Consensus Estimate by $15 million and were up 19.6% sequentially and 3.2% from the prior-year quarter. The year-over-year increase was backed by higher demand across fitness outdoor, marine and aviation segments.

Revenues by Segment

Garmin’s Outdoor, Fitness, Marine, Auto/Mobile and Aviation segments generated 23%, 31%, 9%, 22% and 15% of quarterly revenues, respectively. Seasonality results in considerable variations in Garmin’s quarterly revenues.

Outdoor revenues were up 9.9% sequentially and 15.9% year over year, driven mainly by robust demand for wearables and growth of inReach subscription services.

The Fitness segment increased 65.2% sequentially and 0.8% from the year-ago quarter. The year-over-year increase was driven by GPS enabled products, partially offset by declines in basic activity trackers.

The Marine segment increased 8.3% sequentially and 24.1% year over year. The year-over-year growth was driven by strength in chartplotter and fish finder products. Also, Navionics acquisition added to the growth.

The Auto/Mobile segment was up 3.4% sequentially but down 13.7% on a year-over-year basis. The year-over-year decrease was mainly due to shrinking of the personal navigation device (PND) market, partially offset by OEM growth and strength in niche categories such as fleet, camera, truck and RV.

Aviation segment revenues were up 4.1% sequentially and 10.7% from the prior-year quarter. The increase was mainly driven by higher sales of aftermarket products and positive contributions from OEM products.

Revenues by Geography

While America generated 48% (up 25% sequentially but down 4.3% year over year) of total revenues, EMEA and APAC contributed 38% (up 16.7% sequentially and 12.6% year over year) and 14% (up 10.3% sequentially and 7.7% year over year), respectively.

Outlook

The company gave its guidance for full-year 2018. Management expects revenues of $3.2 billion.

Analysts believe that Garmin’s strong execution, including business, manufacturing and selling abilities, enables it to dominate almost every space that it caters to. The company has several segments with the potential to drive total revenue. Specifically, Outdoors and Aviation is an area where Garmin has a long tradition and the market for such devices is growing at a rapid rate. Bothe the segments performed well in the last quarter. However, Fitness segment is not expected to do very well in the near term due to intense competition in this space.

However, a few analysts are concerned about the persistent weakness in the PND market. They believe that wider adoption of smartphones and tablets, which have in-built mapping and personal navigation software, is a concern. A few analysts have lowered their revenue estimates due to foreign currency headwinds and intensifying competition.

Margins

Gross margin was 56.2%, up 150 basis points (bps) from the year-ago quarter. Stronger demand drove volumes across all segments except Auto, pulling down segment gross margins on a year-over-year basis.

Operating expenses of $320.1 million were up 3% from $311 million in the year-ago quarter. Operating margin of 56.2% was up 160 bps year over year due to an increase in operating income.

GAAP net income was $149.8 million or 79 cents per share compared with $137.9 million or 73 cents per share a year ago.

Outlook

Garmin’s introduction of new products and investments in R&D will steer the company away from the declining PND segment and fuel growth. The analyst remains encouraged by the launch of the company’s new and advanced wearable devices. They believe that management focus on continued innovation and market expansion is likely to look for growth opportunities in all business segments.

However, a few analysts are concerned about strong competition in the general wearable market. Additionally, they are concerned about the negative impact from foreign currency fluctuations in the near term. They also believe that promotional pricing, increased R&D expenditure and higher advertising expenses will put pressure on margins in the near term.

Earnings per Share

Per the press release, pro forma earnings per share were $0.79 in 4Q17, compared with $0.73 in 4Q16.

GAAP earnings per share were $0.73 in 4Q17 compared with $0.72 in 4Q16.

Outlook

For FY18, management expects pro forma earnings of $2.97 per share.

A few analysts are optimistic that Garmin’s new products and services will expand margins and boost revenues, thereby augmenting its differentiation. They also believe that PND sales decline is flattening out.

On the contrary, others believe that earnings will decrease in the upcoming quarter due to weak PND market, foreign exchange headwinds, lower gross margins and intensifying competition in the fitness market, which might narrow down margins leading to lower earnings.

|Research Analyst |Shalu Saraf |

|Copy Editor |Shremoyee Mandal |

|Content Ed. | |

|QCA/Lead Analyst |Aniruddha Ganguly |

|No. of brokers reported/Total | |

|brokers | |

|Reason for Update |4Q17 Earnings Update |

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April 11, 2018

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