Analyst Note| Julie Bhusal Sharma |
In its third quarter, Garmin experienced strong demand in its marine, fitness, and outdoor segments. The COVID-19 pandemic has boosted popularity in outdoor sports and attention to physical wellbeing--especially golf, which Garmin caters to via distance measurement devices and launch monitors and simulators. This strength led to robust third-quarter results, as the company surpassed CapIQ consensus estimates on the top and bottom lines significantly. We think Garmin has adapted well since the beginning of the pandemic, where the company was unable to meet increased demand, including Tacx bikes. The company is now operating in its new Tacx facility, which has begun production and distribution. Adaptations like these have no doubt influenced management’s rosy guidance for the full fiscal year, which has boosted our revenue and operating margin expectations in 2020 and beyond. As a result, we’ve increased our fair value estimate for Garmin to $86 per share from $81. With shares trading around $98, we do not see an appropriate margin of safety and would recommend waiting for a pullback before investing in the narrow-moat name.