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Garmin's High Fitness, Outdoor Expectations Are Already Priced In; Morgan Cuts Target To $46

Garmin Ltd. NASDAQ:GRMN - Garmin's High Fitness, Outdoor Expectations Are Already Priced In; Morgan Cuts Target To $46

Following the 35 percent year-to-date rally in Garmin Ltd. (NASDAQ: GRMN) shares, Morgan Stanley’s Jerry Liu believes the stock is pricing in EPS of $3 and 30 percent revenue growth for the fitness and outdoor segments in 2017, which is optimistic.

Liu maintains an Equal-Weight rating on the company, while lowering the price target from $49 to $46.

Expectations High

The analyst believes the expectations for Garmin could prove to be too optimistic, and there could be some profit taking following the upcoming competitor product launches.

“Improvements in Garmin's Fitness and Outdoor segments drove the recent strong stock performance, especially post 2Q16 earnings,” Liu mentioned, while adding, “With better products, slightly less competition, more shelf space at some retailers, and less currency headwinds, Garmin saw revenue growth acceleration and margin improvements in 1H16.”

In addition, the analyst pointed out that Garmin’s 4 percent dividend yield was attractive, and dividend yielders have outperformed other tech companies so far in 2016.

Long-Term Story Unchanged

“We consider Garmin a high quality company with several strong business segments and an engineering-led culture. However, we do not believe the long-term story has changed significantly enough for Garmin to re-rate to a higher multiple range,” the analyst said.

The current stock valuation assumes overly optimistic earnings power and revenue growth for the outdoor and fitness business, Lui noted.

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DateFirmActionFromTo
Aug 2016Morgan StanleyMaintainsEqual-weight
Aug 2016Goldman SachsDowngradesNeutralSell
Aug 2016Raymond JamesDowngradesOutperformMarket Perform

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