Foolish Forecast: Tuning In to Garmin

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For five quarters straight, Wall Street has underestimated Garmin's (Nasdaq: GRMN) earnings prowess. Did the analysts' pessimism lead them astray once again on the first-quarter 2008 numbers, or have they finally taken Garmin's measure? We'll find out bright and early tomorrow.

What analysts say:

• Buy, sell, or waffle? Twenty-two analysts map Garmin's progress. Ten say it's a buy, while a dozen more would just hold.
• Revenues. On average, they're looking for 45% sales growth to $714.2 million.
• Earnings. Profits are predicted to rise a more sedate 27% to $0.75 per share.

What management says:
Garmin and its rivals have been talking a lot these past few weeks, but shareholders probably wouldn't mind if they clammed up. In early April, Garmin CFO Kevin Rauckman spooked investors when he mentioned to Reuters that Q1 sales could show as much as a 50% decline from Q4 2007 levels. Just a few days later, Mr. Market had a heart attack when Garmin archrival TomTom chimed in with a similar-sounding report that its Q1 2008 sales would decline versus Q1 2007.

Never mind that we're comparing apples to kumquats with these two announcements. Garmin was talking about a sequential decline from the Christmas sales season to post-holiday sales. TomTom warned of a like-to-like decline -- Q1 last year versus Q1 this year. If you look at Garmin's prediction, though, this Motley Fool Stock Advisor and Motley Fool Global Gains recommendation is actually calling for a 25% to 50% sales increase versus the year-ago quarter.

What management does:
So, did Mr. Market just plain blow the call on this one? Or did investors eagerly equate apples and kumquats as an excuse to sell Garmin -- perhaps for other reasons entirely? Reasons such as a fear that Nokia's (NYSE: NOK) purchase of Navteq (NYSE: NVT) will somehow cut Garmin off from its flow of current mapping data? Or that money sunk into Garmin's new nuvifone offering will be lost, as the phone fails to compete in a market replete with popular smartphone offerings from Palm (Nasdaq: PALM), Apple (Nasdaq: AAPL), and Research In Motion (Nasdaq: RIMM)?

Maybe, just maybe, investors sold Garmin off because of what they see happening to its margins:

Margins	9/06	12/06	3/07	6/07	9/07	12/07
Gross	50.0%	49.7%	49.3%	49.5%	48.9%	46.0%
Operating	30.6%	31.3%	30.5%	31.0%	30.8%	28.5%
Net	28.4%	29.0%	29.1%	29.2%	28.3%	26.9%

All data courtesy of Capital IQ, a division of Standard & Poor's. Data reflects trailing-12-month performance for the quarters ended in the named months.

One Fool says:
Whatever the sell-off's catalyst, it appears that with Garmin now up 12% from its recent lows, Garmin bulls who were out to pasture are finally starting to wander back into the barn.