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On Monday, JPMorgan adjusted its outlook on Garmin Ltd . (NYSE:GRMN), reducing the price target to $178 from $185 while maintaining a Neutral rating on the stock.
The firm highlighted that Garmin's shares have declined only 5% since the second quarter earnings report, which included an increase in full-year earnings per share (EPS) estimates. Despite this, the shares continue to trade at a premium valuation of approximately 26 times, compared to the five-year average of around 23 times.
The assessment comes as Garmin approaches its third-quarter earnings, with the stock still trading at a premium. JPMorgan pointed to several concerns that could impact the company's performance, including a challenging operating environment marked by the Textron (NYSE:TXT) Aviation strike and sluggish trends in the Wearable, Marine, and Auto markets. There is also growing investor worry about the fading momentum from recent product launches.
However, there are some positive indicators, such as increases in Garmin Connect downloads and monthly active users (MAU) during the third quarter. Upcoming product launches, like the Fenix 8, Enduro 3, and Lily 2 Active, are expected to provide a boost during the holiday season. Additionally, Garmin's acquisition of Lumishore could contribute to a more resilient near-term setup than currently anticipated by bearish investors.
JPMorgan has slightly revised its near-term forecast for Garmin, raising the 2024 earnings outlook to $6.10 from $6.05, which is still below the consensus of $6.07. This adjustment reflects a modest improvement in Wearable trends, balanced against potential demand challenges in the Marine (excluding Lumishore) and Aviation sectors.
Looking beyond 2024, the firm has moderated its revenue forecast for the following years, adjusting the earnings outlook to $6.55 for 2025 (down from $6.75) and $7.30 for 2026 (down from $7.55), both below the consensus estimates.
In conclusion, JPMorgan reiterated its Neutral stance, suggesting limited upside potential for Garmin shares due to the premium valuation and the high execution hurdle the company faces, especially in a difficult operating environment.
In other recent news, Garmin Ltd. reported a 14% increase in consolidated revenue for the second quarter of 2024, amounting to $1.51 billion. This led to an upward revision of full-year revenue guidance to approximately $5.95 billion.
Garmin also announced the acquisition of Lumishore, a company specializing in high-performance LED lighting systems for the marine industry, to enhance its marine product portfolio.
On the analyst front, JPMorgan maintains a Neutral stance on Garmin, while Barclays and Morgan Stanley downgraded Garmin's stock due to concerns over the company's valuation and potential slowdown in revenue growth.
Garmin International, a unit of Garmin Ltd., recently received certification for its G5000 integrated flight deck for use in Cessna Citation XLS+ and XLS Gen2 business jets. These are among the recent developments for Garmin Ltd.
InvestingPro Insights
To complement JPMorgan's analysis, recent data from InvestingPro offers additional context on Garmin's financial position. The company's market capitalization stands at $31.2 billion, with a P/E ratio of 22.67, which aligns with JPMorgan's observation of Garmin trading at a premium valuation.
InvestingPro Tips highlight Garmin's strong financial health and consistent performance. The company holds more cash than debt on its balance sheet, indicating a solid financial foundation. This strength is further evidenced by Garmin's ability to maintain dividend payments for 22 consecutive years, with 7 years of consecutive dividend increases. These factors may contribute to investor confidence despite the challenging operating environment noted by JPMorgan.
The company's revenue growth of 14.92% over the last twelve months and an EBITDA growth of 23.66% suggest robust operational performance, potentially justifying its premium valuation. Additionally, Garmin's high return over the last year, with a one-year price total return of 65.98%, underscores the stock's strong performance that JPMorgan referenced.
For investors seeking a more comprehensive analysis, InvestingPro offers 11 additional tips on Garmin, providing a deeper understanding of the company's financial health and market position.
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