Garmin maps out path to growth
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The market for automotive GPS devices has become more crowded in recent years, as demand from both consumers and automakers sparked competition, including from smartphone apps. But don’t let that saturation scare you away from Garmin ($127; GRMN), which has grown beyond its legacy auto business to tap into newer markets.
Over the last 12 months, Garmin grew sales 10%, per-share profits 12%, and operating cash flow 37% — this despite a Covid-related reduction in travel. Profits have topped consensus estimates in 20 consecutive quarters, including surprises of 58% in the September quarter and 122% in the June quarter. Credit the operating momentum to Garmin’s diversity.
As traditional road trips became less popular last year, people gravitated toward different diversions, such as hiking, boating, fishing, golfing, and other physical activities practiced in less-crowded settings. Products from the Outdoor, Marine, and Fitness units have sold well, offsetting declines in Automotive and Aviation. Garmin has broadened its portfolio of products in recent years, gaining market share in the process.
Garmin’s ability to grow beyond its roots gives us confidence that management can continue to adapt to changing customer needs. The consensus projects revenue growth of 8% and profit growth of 6% in 2021, with annualized profit growth of 7% over the next five years. Given Garmin’s consistent ability to introduce new products and analysts’ tendency to underestimate the company, we find current projections somewhat conservative. The stock, yielding 1.9%, is a Focus Buy and a Long-Term Buy.
Garmin, domiciled in Switzerland but with an operational headquarters in Kansas, generates about four-fifths of its revenue from consumer GPS units and the last fifth from aviation devices. The company generated 48% of sales in the Americas, 36% in Europe, and 15% in Asia. Sales of Outdoor, Marine, and Fitness devices rose at least 30% in the September quarter. We expect these smaller units to continue powering Garmin’s growth, while a post-pandemic economic recovery could revive Auto and Aviation. Wearable products, such as devices geared toward hiking and cycling, have sold particularly well, as have units with solar charging capabilities. These devices do a lot more than chart a course — which is good, considering that maps and directions are now available free of charge via apps such as Google Maps. Many of Garmin’s products feature cameras, repetition counters, or even heart-rate monitors.
As for Garmin’s core Automotive business, contracts to provide GPS units for new cars should help sales growth return to a positive trajectory this year after a more than 10-year down cycle. Garmin also makes infotainment systems and driver-assist cameras. Other specialty products outside of Automotive include radar, sonar, marine autopilot systems, audio equipment, and trolling motors.
Garmin Ltd., Muhlentalstrasse 2, Schaffhausen, Switzerland, (41) 52-630-1600, www.garmin.com.
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