Opinions
Kash Pashootan
Garmin Limited
GRMN-Q
SELL
Jun 05, 2015
Stock price when the opinion was issued
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GPS technology. He was looking for a technology play with a good yield. Likes their Marine, Fitness and other divisions. Feels that the GPS market as a whole is going to be huge. They are reinventing their product array and it is a really, really strong company. Lots of cash. Yield of 4.1% with a 60% payout ratio.
Generates 50% or so of revenue from OEM GPS units in Chrysler and Jeep. Have been spending a lot of money on innovation. That is a good thing if the innovation works, but is a bit of a wildcard. A lot of the innovations they are coming out with are wrist wear type of devices, but a lot of that can be done with your smart phone. 5% dividend yield.
Likes it and has been following it for years. Last week, they reported 13% revenue growth while four of their five segments beat expectations, a top and bottom line beat. Gross margins were way up at 53.8%, beating expectation, and operating margins also beat. Free cash flow also increased. The company keeps innovative, like their new smart watch. Inventory level is now strong, having overcome surplus inventories. Now trades at 25.5x PE, but they deserve this premium because of their earnings outlook.
Had GPS devices in cars, now successfully pivoted to different business lines. Active watches, flight decks, boating GPS, equipment for automakers. Fast-growing, beautiful balance sheet. Acquires lots of companies in its relevant spaces. Consumer will continue to spend $$ on these high-quality products. A hidden compounder. Yield is 1.8%.
(Analysts’ price target is $162.29)
Generates about 50% of their revenue from selling GPS units to OEM car manufacturers. That part of their business has been struggling, and is worrisome because it is such a large part of where their revenues come from. Have recently been spending money on innovations, and coming out with wearable devices. The challenge is that innovation is quite costly. Their free cash flow is down 10%-12% over the last few years. His biggest concern is that they are channelling their investments and focus on wearables including watches. Apple (AAPL-Q) and other smart phones can do all of this, and he doesn’t want to be competing with the Apple brand.