I can attribute this sell-off to one of three reasons. First, the old whisper number game is being played and despite GRMN reporting 78% growth in EPS, this was obviously not enough for the fast money crowd. Second, the stock was due for some profit taking.
The third reason is actually a reason to be buying the stock in here. GRMN announced concurrently with its earnings report the company’s intention to purchase Tele Atlas for EUR 2.3 billion or USD $3.3 billion, which represents an approximate 15% premium to the bid made by rival TomTom for Tele Atlas.
Recall that a few weeks ago Nokia (NYSE:NOK) agreed to buy Tele Atlas' digital mapping competitor Navteq (NVT) for $8.1 billion. The NOK/NVT deal would have left GRMN as the odd man out in terms of having a vertically integrated digital mapping source. GRMN was sold heavily on that news. Now that GRMN is in the game for Tele Atlas, the immediate reaction is to sell the acquirer.
Since TomTom is not likely to go away quiet, investors may be concerned that GRMN would have to pay significantly more than $3.3 billion if a bidding war erupts. However, GRMN is far better positioned than TomTom to finance the acquisition and I think will be triumphant at the end of the day. TomTom shares are significantly lower as investors confirm that GRMN is now in the drivers’ seat for Tele Atlas.
In conclusion, the earnings plus the Tele Atlas news is a positive for GRMN and the stock should be bought on weakness.
Disclosure: At the time of this Blog entry Scott Rothbort, his family and or clients of LakeView Asset Management, LLC were long shares of GRMN --- although positions can change at any time.