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Garmin: More Attractive Than Before But Still Not Dirt Cheap

Mar. 02, 2020 9:58 AM ETGarmin Ltd. (GRMN)4 Comments


  • Garmin's share price has dipped below $90 again.
  • The adjusted free cash flow is slightly outpacing the normalized net income, giving Garmin a 5.5% free cash flow yield.
  • The 2.8% dividend is very safe, and the debt-free balance sheet with $2.2B in cash and securities will act as a buffer.
  • Garmin isn't cheap but increased option premiums could be used to an investor's advantage.
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As the market has slipped into correction territory it’s always interesting to have another look at companies with low debt piles and strong cash flows to see how they are weathering the storm. Garmin (NYSE:GRMN) has had a good run in the past two years but slipped back below $100 due to coronavirus issues. Back in November, I claimed the company was approaching fair value but an additional quarter of free cash flow has now hit the books and the share price is trading approximately 10% lower. A good moment to have another look.

Strong cash flows in 2019…

And Garmin clearly ended the year on a strong note: Its Q4 revenue increased by 18% which is a clear acceleration compared to the 12% revenue growth over the entire financial year. Hardly a surprise as Q4 generally is a "gift" season: there’s Thanksgiving, Christmas and New Year's as traditional gift-giving holidays.

Source: Company presentation

The total revenue in FY 2019 came in at $3.76B while the gross profit increased to $2.23B and the operating income showed a 22% increase to $946M. And that’s excellent as despite the 12% revenue increase, Garmin was able to keep a lid on its expenses: Advertising expenses increased by just 6%, SG&A expenses increased by less than 9% and although Garmin is now spending almost 20% more on R&D expenses compared to 2017 and boosted it by an additional 8% compared to last year, the operating margin has increased from 23.24% in FY 2018 to almost 25.2% last year. And that makes the strong share price performance in 2019 very understandable.

Source: SEC filings

The bottom line showed a net income of $952M (compared to $694M in FY 2018) but this was fueled by a non-recurring deferred tax benefit of $88M, so on a normalized basis, the net

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The Investment Doctor is a financial writer, highlighting European small-caps with a 5-7 year investment horizon. He strongly believes a portfolio should consist of a mixture of dividend and growth stocks.

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Comments (4)

@mmoy most of their avionics goes into private aircraft. I doubt anyone who is flying private cares about a few bucks more than their life/safety.

Garmin is upscale... and no one rich will be drastically changing their lifestyle/purchasing habits due to an economic blip
LL- agreed and I would expect greater use of private aircraft to avoid mass transit, trains and airlines.
I am impressed by all the new products Garmin is able to bring to the market on almost a weekly occurrence. They know what consumers want and deliver a superior product before anyone else.
Also these two new product developments may be a barn burner.

Garmin joins BMW AG as a tier-one infotainment supplier
Mercedes-Benz and Garmin to partner for navigation
Chrysler already uses Garmin maps in its models
Garmin has signed a 4-year deal with Mercedes
02 Mar. 2020
Issues I have are the decrease in travel, potentially hitting their avionics sales and lower economic activity globally which may lead to people not being able to afford Garmin's devices. I would expect them to discount their fitness and outdoor products.

I do have my eye on a Fenix 6X with titanium band though.
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