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Saturday, 17 November 2007
Garmin (GRMN) "Revisiting a Stock Pick"

CLICK HERE FOR MY PODCAST ON GARMIN (GRMN) 

Hello Friends!  Thanks so much for stopping by and visiting my blog, Stock Picks Bob's Advice!  As always, please remember that I am an amateur investor, so please remember to consult with your professional investment advisers prior to making any investment decisions based on information on this website.


It is Saturday, and I wanted to see if I could get this one posted before the weekend is over!

The market rebounded yesterday and I saw an old favorite of mine, Garmin (GRMN) make the list of top % gainers on the NASDAQ.  I say 'old favorite' because I first posted about Garmin (GRMN) on May 3, 2006, when the stock was trading at $48.22, adjusted for a 2:1 stock split on August 16, 2006.  Garmin closed at $97.51, up $13.51 on November 16, 2007, for a gain of 16.08% on the day!  I do not own any shares nor do I have any options on this stock.  (At Friday's closing price, this represents an appreciation of $49.29 or 102.2% since my stock pick!)

Let me try to briefly review this stock and point out why I believe this stock deserves a spot on my blog and why

GARMIN (GRMN) IS RATED A BUY

What exactly does this company do?

According to the Yahoo "Profile" on Garmin, the company

"...and its subsidiaries engages in the design, manufacture, and marketing of navigation, communications, and information devices that are enabled by global positioning system (GPS) technology worldwide. It operates in four segments: Automotive/Mobile, Outdoor/Fitness, Marine, and Aviation."

Is there any news to explain the large move?

I haven't been following this stock closely, but two factors have been suppressing the stock price.  The company had been involved in an attempt to acquire TeleAtlas and also the company had been under pressure as much of its mapping information has been coming from Navteq (NVT), which since it is being acquired by Nokia (NOK), there had been concerns about the company's access to this critical information.  However, as reported:

"Navigation device maker Garmin is walking away from a costly bidding war with rival TomTom over Tele Atlas, a supplier of mapping data. Instead, Garmin (GRMN) worked out an agreement to get that valuable data from another source.

Garmin, based in the Kansas City suburb of Olathe, Kan., will extend through 2015 an existing contract to buy mapping from Navteq (NVT), the Chicago-based company that is being acquired by Finnish mobile-phone giant Nokia (NOK). Garmin also secured an option to renew the agreement for an additional four years. The companies also said they would explore "expanded points of cooperation" to improve mapping data quality. Financial terms of the deal were not disclosed.

The move brings an end to a dramatic takeover tussle that has shaken the navigation business to its core and fueled surges in the stock prices of takeover targets Navteq and Netherlands-based Tele Atlas. Though it has lost the bidding battle over Tele Atlas, Garmin sure looked like a winner to investors. It already buys about 98% of its mapping data from Navteq, so the extension of the current agreement lets it proceed without missing an operational beat. Garmin's plan for acquiring Tele Atlas included a transition period that would have lasted as long as two years."

How did they do in the latest quarter?

On October 31, 2007, Garmin reported 3rd quarter 2007 results.  Total revenue came in at $729 million, up 79% from $408 million in the third quarter of 2006.   Net income (GAAP) came in at $193.5 million, up sharply from $123.0 million in the same quarter last year.  Diluted earnings per share climbed 57% to $.88/share from $.56/share last year. 

The company beat estimates on earnings which had been expected to come in at $.82/share, and instead came in at $.88/share. The company also raised 2007 guidance to $3.40/share from prior forecast of $3.15/share.  Also it raised revenue guidance for 2007 to more than $2.9 billion from prior guidance of 'at least $2.8 billion'.

How about longer-term results?

Reviewing the Morningstar.com "5-Yr Restated" financials on GRMN, we can see a phenomenal picture of rapid and steady revenue growth from $465 million in 2002 to $1.77 billion in 2006 and $2.25 billion in the trailing twelve months (TTM).  Earnings during this period have also grown rapidly from $.70/share in 2002 to $2.40/share in 2006 and $3.00 in the TTM.  The company initiated dividends at $.30/share in 2004, raised them to $.50/share in 2006 and up to $1.30/share in the TTM.  Meanwhile, shares outstanding have been very stable at 216 million in 2005, 217 million in 2006 and a drop to 216 million in the TTM.

Free cash flow has been positive and growing rapidly with $131 million in 2004 increasing to $269 million in 2006 and up to $473 million in the TTM.

The balance sheet is gorgeous with $668 million in cash which alone could pay off all of the current liabilities of $428.2 million and the smallish $91.5 million in long-term liabilities combined.  Calculating the current ratio, we have a total of $1,689 million in total current assets compared to current liabilities of $428.2 million, yielding a current ratio of 3.94.

What about some valuation numbers? 

Reviewing Yahoo "Key Statistics" on Garmin (GRMN), we can see that this is a large cap stock with a market capitalization of $21.15 billion. The trailing p/e is a moderate 29.37 with a forward p/e (fye 30-Dec-08) estimated at 22.57.  The PEG ratio is a very reasonable 1.15.

In terms of valuation, the company is richly priced, with a Price/Sales (TTM) ratio of 8.20 compared to an industry average of 1.62, according to the Fidelity.com eresearch website.  However, the Fidelity website also reports that the company is extremely profitable relative to its peers with a Return on Equity (TTM) of 40.65% compared to the industry average of 12.27%.

Returning to Yahoo, we can see that there are 216.88 million shares outstanding with 102.91 million that float.  As of 10/26/07, there were 5.80 million shares out short, but owing to the large daily volume, this works out to only a 1.2 day 'short ratio'.

As noted above, the company is paying a dividend, which per Yahoo works out to $.75/share yielding .9%.  The last stock split was a 2:1 split, as I mentioned above, on August 16, 2006.

What about the chart?

Looking at the StockCharts.com 'point & figure' chart on Garmin, we can see that the stock has moved sharply higher this past year with an increase from $44 in December, 2006, to a recent high of $124 in October, 2007.  With concerns about the Navteq purchase by Nokia, and the recent acquisition attempt by the company, the stock price dropped to as low as $81 in November, 2007.  With the removal of the acquisition attempt, and the contractual arrangements to obtain the Navteq data, the stock moved sharply higher yesterday, and is close to clearing the recent 'resistance line'.  I am comfortable with the chart in light of all of the news.


Summary:  What do I think about this stock?

I like this stock a lot!  I do not own any shares but if I had the opportunity, I would be buying shares.  To review, they recently dropped an acquisition attempt which generally helps an acquiring stock which otherwise might have its stock depressed in price.  In addition, concerns about one of their suppliers being acquired (Navteq) is now resolved for the immediate future.  They reported a terrific earnings report which beat estimates and they raised guidance.  Their long-term report is impeccable with steady revenue and earnings growth, an increasing dividend, and a stable outstanding shares count.

Free cash flow is solid and growing and the balance sheet is very solid.

Valuation-wise, the p/e isn't bad in light of the fast growth reported resulting in a PEG ratio just over 1.  Price/sales works out rich but the Return on Equity is impressive.  

I guess I just like this stock!

Anyhow, that's a wrap for this week!  Thanks so much for visiting!  If you have any comments or questions, please feel free to leave them on the blog or email me at bobsadviceforstocks@lycos.com.  I cannot always answer all of the email I get, but I do read all of my mail and try to get around to commenting on all of the correspondence I receive!

If you get a chance, be sure and visit my podcast website.  I shall try to post a new podcast this weekend if I get a chance :).  Also, be sure and visit my Covestor page where my actual trading portfolio is analyzed and compared to other investors.  In addition, my SocialPicks page reviews all of my 'stock picks' and keeps track of their performance.  

Thanks again for visiting!  Be sure and have a wonderful weekend.

Bob


Posted by bobsadviceforstocks at 5:32 PM CST | Post Comment | Permalink
Updated: Sunday, 18 November 2007 9:58 PM CST

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