Garmin Earnings Preview: First Quarter 2009

Garmin [[GRMN]] is scheduled to report their first quarter 2009 results after the market closes on Thursday, May 7. Based on our analysis, we at are expecting GRMN to report mixed results with earnings that will likely exceed Wall Street’s consensus expectations.


Analyst Expectations

We are forecasting revenues of $528.7 million and EPS of $.44. This would represent a 20% decline in revenues from last year’s $663.8 million in the same period. The current analyst consensus estimates calls for revenues of $531.6 million and EPS of $.42. Due to the current market “uncertainties and dynamic conditions”, Garmin has chosen to not offer specific guidance for 2009 until the outlook for the year becomes clearer.


We are anticipating further deceleration in Garmin’s top line sales, but believe there is a possibility for an earnings beat on better than anticipated costing cutting. Last week, TomTom also reported better than expected earnings results despite falling sales numbers.


The global economic recession appears to be only magnifying Garmin’s product issues. The company continues to rely heavily on automotive sales to drive sales of its GPS products. Our view is that without vastly-improved, new products customers are going to defect to lower-cost and more convenient cell phone applications.


Share Performance

Since the beginning of the year, Garmin’s shares are up over 32%. In 2008, Garmin’s shares fell an amazing 80% as the one-time tech high flyer saw its price fall from over $100 per share to less than $20 per share.



Shares are now trading at 11x consensus 2010 EPS estimates. This is a discount to the relative valuations of their peer group. We believe that the recent run-up in Garmin’s shares (up over 50% in the last two months) has been totally driven by increasing optimism in the market and does not reflect improvements in the fundamentals of Garmin’s business. Long term, we believe that demand for Garmin’s products will continue to decline and would not recommend owning at these prices.


Recommendation: Sell with an $18 price target.


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