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Benjamin Graham taught that Intelligent Investors must do a thorough fundamental analysis of investment opportunities to determine their intrinsic value and inherent risk. This is best done by utilizing a systematic approach to analysis that will provide investors with a sense of how a specific company compares to another company. By using the ModernGraham method one can review a company's historical accomplishments and determine an intrinsic value that can be compared across industries. What follows is a specific look at how Garmin Limited (NASDAQ:GRMN) fares in the ModernGraham valuation model.

GRMN Chart

GRMN data by YCharts

Defensive Investor - must pass at least 6 of the following 7 tests: Score = 6/7

  1. Adequate Size of Enterprise - market capitalization of at least $2 billion - PASS
  2. Sufficiently Strong Financial Condition - current ratio greater than 2 - PASS
  3. Earnings Stability - positive earnings per share for at least 10 straight years - PASS
  4. Dividend Record - has paid a dividend for at least 10 straight years - PASS
  5. Earnings Growth - earnings per share has increased by at least 1/3 over the last 10 years using 3 year averages at beginning and end of period - PASS
  6. Moderate PEmg ratio - PEmg is less than 20 - PASS
  7. Moderate Price to Assets - PB ratio is less than 2.5 or PB x PEmg is less than 50 - FAIL

Enterprising Investor - must pass at least 4 of the following 5 tests or be suitable for a defensive investor: Score = 4/5

  1. Sufficiently Strong Financial Condition, Part 1 - current ratio greater than 1.5 - PASS
  2. Sufficiently Strong Financial Condition, Part 2 - Debt to Net Current Assets ratio less than 1.1 - PASS
  3. Earnings Stability - positive earnings per share for at least 5 years - PASS
  4. Dividend Record - currently pays a dividend - PASS
  5. Earnings growth - EPSmg greater than 5 years ago - FAIL

Valuation Summary

Key Data:

Recent Price$54.50
MG Value$15.71
MG OpinionOvervalued
Value Based on 3% Growth$42.58
Value Based on 0% Growth$24.96
Market-implied growth rate5.03%
NCAV$7.05
PEmg18.56
Current Ratio2.87
PB Ratio2.91

Balance Sheet - 12/28/2013

Current Assets$2,595,600,000
Current Liabilities$905,300,000
Total Debt$0
Total Assets$4,879,600,000
Intangible Assets$219,500,000
Total Liabilities$1,219,900,000
Outstanding Shares195,150,000

Earnings Per Share

2013$3.12
2012$2.76
2011$2.67
2010$2.95
2009$3.50
2008$3.48
2007$3.89
2006$2.35
2005$1.43
2004$0.94
2003$0.82
2002$0.66

Earnings Per Share - ModernGraham

2013$2.94
2012$2.92
2011$3.10
2010$3.29
2009$3.28
2008$2.92

Dividend History

GRMN Dividend Chart

GRMN Dividend data by YCharts

Conclusion:

Garmin is a strong company suitable for Defensive Investors and Enterprising Investors, but it doesn't have a strong valuation at this time. The company only fails the Defensive Investor's PB ratio requirement, and the Enterprising Investor's earnings growth over 5 years requirement. As a result, value investors seeking to follow the ModernGraham approach based on Benjamin Graham's methods should feel comfortable researching the company further and certainly keeping it on a watch list going forward. As for the valuation, the company has seen a slight drop in EPSmg (normalized earnings) over the last 5 years, from $3.28 in 2009 to $2.94 for 2013. This historical performance does not support the market's implied estimate for earnings growth of 5.03%, and leads the ModernGraham valuation model to return an estimate of intrinsic value that trails the market price, indicating the company may be overvalued at the current time. If the earnings improve significantly in 2014, and return the company to growth, then the valuation may improve.

Disclaimer: The author did not hold a position in Garmin Limited or any of the other companies listed in this article at the time of publication and had no intention of changing that position within the next 72 hours.

Source: ModernGraham Quarterly Valuation Of Garmin Ltd.