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Garmin Stock Clears $100 -- Does It Still Have Room to Run?

By Howard Smith - Jan 28, 2020 at 10:40AM

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For this company, the climb back from Great Recession lows has been a marathon, and it hasn't crossed the finish line yet.

Longtime Garmin (GRMN -0.23%) shareholders may remember the roaring rally in late 2007, followed by the collapse along with the market during the Great Recession. Since then, the stock's upward climb hasn't been as steep, but it finally worked its way back to the $100 mark this month.  

GRMN Chart

Data by YCharts

Let's take a look at what the business has done along the way, and what the future may hold. 

No longer an automotive GPS company

The last decade for Garmin has been one of transition as it shifted from a reliance on automotive Personal Navigation Devices (PND) to other segments of the business: fitness, outdoor, marine, and aviation.

Garmin fishfinder in boat on lake

Image source: Getty Images.

The table below illustrates this transition, showing a snapshot of the percentage of sales for each category from 2007 to the present.

Segment Fiscal 2019* Fiscal 2013 Fiscal 2007
Outdoor 23.5% 15.6% 5.4%**
Fitness 25.4% 13.5% 5.4%**
Marine 14.8% 8.5% 6.4%
Automotive/mobile 15.9% 49.5% 73.6%
Aviation 20.4% 12.9% 9.3%

Data Source: Garmin financial filings. *Fiscal 2019 data for the first three quarters of the year. **Data shown as even split between outdoor and fitness segments, which were previously reported as a single unit.

The transition from the automotive space has been notable. 

Solid business fundamentals

The segments powering the business are still in growth mode. The table below shows the compound annual growth rate (CAGR) for each segment's revenue over the past three years.

Segment Three-Year Compound Annual Growth Rate
Outdoor 25.4%
Fitness 9.1%
Marine 15.5%
Auto (15.8%)
Aviation 14.8%

Data source: Garmin financial filings. Calculated for full-year revenue from fiscal 2016 through fiscal 2018.

These trends have only accelerated in fiscal 2019, as outdoor, fitness, and aviation each exhibited the strongest year-over-year growth rates of the year during the third quarter.

Investing for further growth

These results have given management the confidence to raise guidance over the course of the year as well. Going into 2019, guidance for the year was for $3.5 billion in revenue and $3.70 of earnings per share. It most recently updated those figures after the third quarter for revenue of $3.65 billion and $4.15 per share of earnings, increases of 4.3% and 12.2%, respectively. Both gross and operating margins are also predicted to increase for the third consecutive year.

There's no reason to think this outperformance can't continue. The company is investing in research and development, increasing that expense by mid-single digits throughout 2019. And contributions from the 2019 acquisition of indoor cycling and training firm Tacx are beginning to be realized in the fitness category.

Expectations going forward

The company is set to report fourth quarter and full year 2019 results on Feb. 19. Guidance for the next year will be announced, but don't be surprised if it's on the conservative side, and management increases it throughout the year. This conservative approach is also reflected on the balance sheet.

A 2.3% dividend yield is well covered by free cash flow, and as of Sept. 28, 2019, the company had $2.5 billion of cash and marketable securities on its balance sheet, which gives the company the flexibility to pursue additional acquisitions.

Investors looking for a committed dividend payer with solid prospects for ongoing growth would be wise to look at Garmin as it evolves its non-automotive segments for the burgeoning outdoor lifestyle market. 

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