Analyst Note| Julie Bhusal Sharma |
Narrow-moat Garmin delivered a strong second quarter, with all five business segments experiencing double-digit annual growth. In response to increasing momentum in every product category, management raised 2021 revenue guidance by 7% from its previous outlook. We are raising our fair value estimate to $113 per share from $98 and continue to view shares as overvalued. The discrepancy between our fair value estimate and the current market price largely results from the stock’s 33% appreciation over the past six months despite pandemic-induced lockdowns being a strong tailwind for the company. The demand for Garmin’s products in segments that initially benefited from being isolation-friendly, has seen increasing growth even with the return to normalcy. As double-digit outlooks for 2021 in every business segment reflects the accelerating demand for active lifestyle products without any re-emergence of COVID being considered, we believe Garmin may exceed the high end of its guidance. We think an earnings beat is possible as the potential of future lockdowns in response to the delta variant may benefit certain segments even more, as was the case in 2020.