Garmin Earnings: Wearables Lead to Q3 Beat and Outlook Amplified Ahead of Holidays

In its third quarter, Garmin surpassed our top- and bottom-line expectations, leading to a rosier guide from management for the full year. Highlights of the quarter included wearables demand in fitness thanks to launches of the new Venu 3 smartwatches and vivoactive 5. In addition, adventure watches carried outdoor strength—setting up the company for what we think will be a solid holiday season. Despite the pleasant earnings results, we are slightly tapering our fair value estimate for the narrow-moat company to $124 from $129 per share as we moderate our explicit forecast for free cash flow. Nonetheless, we continue to believe Garmin’s future looks bright, with ample revenue growth and margin expansion in store. While we do not consider the fitness segment to be moaty, we believe our optimism in this sector is where we differ from the market—as we think the effect of pandemic-related health trends persists to some degree and there is enough room in this market for Garmin even with large competitors like Apple. Shares are up around 10% upon results, near $113 per share—leaving the stock attractively priced, even with our slight fair value cut.