Garmin: Overrated or Underappreciated?
Bank of America Merrill Lynch analyst Vivek Arya looks to be going out a bit of a limb in upgrading the stock of Garmin (GRMN) from “Underperform” to “Buy” on Friday, saying concerns about smart phones displacing dedicated GPS devices are overstated.
In a research note, Arya said there has been a revival in auto GPS demand due to automakers restocking their product lines. Additionally, Arya said the near-term threat of Garmin’s personal-navigation-device, or PND, business being cannibalized by smartphones with built-in GPS systems “is less than we had feared.”
According to MarketWatch, Arya also said that Garmin is benefiting from what he called its “unappreciated non-PND” business segments, including its aviation, marine and outdoor and fitness products. Those segments contribute about 30% of Garmin’s sales, but account for 45% of the company’s operational earnings.
[Bank of Amercia Merril Lynch recently added Garmin to its SmallCap Enhanced Contrarian Portfolio]
But as Forbes reports, Goldman Sachs “gave Garmin the Wall Street kiss of death on Aug. 12, adding the GPS electronics maker to its “conviction sell” list. Analyst Thomas Lee slapped a $23 price target on Garmin.”
Now however, Goldman has added TomTom (TOM2) to its conviction-buy list with an 18-month price target of 17 euros from 10 euros — implying a 47% upside.
The investment bank said TomTom’s current valuation still “understates the likely potential” for the company’s auto OEM opportunity.
Standard & Poor’s stakes out the middle ground, rating Garmin as a Hold with a target of $34. S&P said “we positively view GRMN’s shift in strategy to partner with Asustek to develop smartphones, but remain concerned of the potential revenue
that GRMN can generate from this market, as it will be competing against many established phone makers and wireless carriers that have already begun to offer navigation software and services.
Dougherty and Co analysts Jeff Evanson and Charlie Anderson on Aug 19 upgraded Garmin to a Buy with a price target of $34.
They noted that PNDs are gaining strength as a category and that “TomTom’s iPhone application, at $99, is not disruptive to the business.”
Evanson takes more pessimistic long term view of the sector, unless he has changed his mind since last December when he said “This PND space is absolutely going in the crapper.”
Much of the rationale for improved sentiment on the sector seems to be based on things not being as bad as expected in the short-term, while in the longer term, the outlook is still challenging.
Recent generally favorable reviews of iPhone and other GPS applications by trendsetters such as Walt Mossberg suggest it’s only a matter of time before the standalone GPS goes the way of the 8-track tape player and Betamax.
You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.
