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Bull of the Day: Garmin Ltd. (GRMN)

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Garmin Ltd. (GRMN - Free Report) crushed Zacks earnings estimates at the end of July as part of an impressive streak of bottom-line beats. GRMN shares have also outpaced the broader technology sector for years. And the navigation and wearable technology firm is poised to keep growing as it benefits from expansion within multiple areas.

From Fitness Trackers to Flying Taxis

Garmin helped kick off the modern consumer-facing GPS movement in 1989. The goal was to integrate GPS technology into navigation devices for multiple markets. For many, GRMN became a household name in the mid-2000s as in-car navigation systems began to take off.

Luckily, Garmin is far more diverse since many people use their smartphones to find their way around. The company’s fitness wearables and smartwatches have grown in popularity despite competition from Apple (AAPL - Free Report) and others. GRMN continues to roll out a diverse array of offerings in this hot space that still has plenty of runway.

Consumers are more connected than ever before and many want to track everything from their steps to their heart rates. Fitness revenue climbed 40% last quarter and the unit was its biggest top-line contributor, accounting for around 31% of total revenue.

Along with its more everyday consumer electronic devices, the Switzerland-headquartered firm sells high-end fish finders, advanced radars and systems for boats and airplanes, and much more. For instance, GRMN in February landed an agreement with Joby Aviation for tech to help create “scalable air taxi services.”

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Recent Showings and Outlook

Last year marked GRMN’s fifth straight year of revenue growth. The company’s sales climbed an impressive 11% to $4.19 billion, which came on top of FY19’s 12.3% revenue expansion and 2018’s 7%. More recently, GRMN posted 25% first quarter sales expansion and 53% growth in Q2.

Garmin reported 40% or higher top-line growth in all five of its business units, with its Auto division up 74% to lead the way, followed by 66% Marine expansion. The company also raised its full-year guidance on the back of broad-based strength. And it could continue to benefit from solid spending, especially since many of its offerings are geared toward higher-income consumers who are sitting on a ton of savings.

GRMN’s adjusted second-quarter earnings soared 85% to $1.68 a share to blow by our consensus EPS estimates by 37%. The company has now topped our bottom-line estimates by an average of 39% in the trailing four periods.

Zacks estimates call for GRMN’s fiscal 2021 sales to climb 18% to $4.94 billion, with FY22 set to pop another 8% higher. Meanwhile, its adjusted EPS figures are expected to climb by 9% and 13%, respectively over this stretch.

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Image Source: Zacks Investment Research

Other Fundamentals

GRMN has popped 43% in 2021 and over 70% in the last 12 months to easily top the broader Zacks Technology Sector’s 42% climb. The stock’s outperformance extends over the last five years, with Garmin up 265% vs. tech’s 184% run.

The performance has stretched its valuation picture, yet it still trades almost exactly in line with the broader technology sector at 28.3X forward 12-month earnings. Garmin shares have also slipped from its recent highs alongside other tech names, closing regular hours Monday around 4% off its August 31 records at around $171 a share. The recent pullback has sent the stock from overbought RSI levels (70 and above) to near neutral at 55.

Investors should also be pleased to know that its 1.57% dividend yield tops the 10-year U.S. Treasury’s 1.32% and the S&P 500’s 1.25%. The payout is made more impressive by its performance.

The company boasts a rather strong balance sheet. Garmin has no debt on its books at the moment, while holding $3.2 billion in cash and marketable securities. And it generated roughly $120 million of free cash flow last quarter.

Bottom Line

Garmin’s positive earnings revisions help it land a Zacks Rank #1 (Strong Buy) right now. In the end, longer-term investors might want to consider Garmin as a financially robust, dividend-paying tech stock exposed to multiple growth areas from wearables to flying taxis.

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