Garmin (NASDAQ: GRMN) Ready To Stretch Its Legs

A 3% jump on Friday was enough to put Garmin (NASDAQ: GRMN) shares within a couple of cents of their 52 week high as well as their highest level since 2007’s all-time highs. After watching their shares collapse 90% from that peak into 2009, the company has had to reinvent itself in a lot of ways as a new 21st-century tech company but they’ve done a great job.

A relatively slow and steady plod north in the decade since saw the stock tack on more than 600% before COVID threatened another 2007-esque collapse in March. But the work put in by management in the meantime has clearly been foundational as Garmin shares had a summer to remember and are now above pre-COVID levels. And based on recent numbers and comments, shares look set to continue their rally.

Double Notch Upgrade

On Friday, Bank of America were out with a rare double notch upgrade to the $20 billion company that’s known around the world for their GPS technology. Analyst Ronald Epstein slapped a fresh $120 price target on to shares at the same time which represents upside of some 20% from where they closed on Thursday.

In moving them straight from Underperform to Buy, and skipping the Neutral step in between, Epstein said in a note to clients; "we have always viewed Garmin as a disruptive niche player with a diversified business model and sound balance sheet (the company has $0 debt). However, the COVID-19 pandemic has positively impacted sales of outdoor, fitness and marine products at Garmin more than we anticipated.”

With a 54% jump year on year, revenue from the marine segment was by far the best performer for Garmin and helped to make up for the contraction seen in their aviation segment. In light of the global pandemic and the disruption caused to domestic and international travel, it’s somewhat understandable that revenue there fell 19% year on year. However, it must be noted that many on Wall Street are starting to think that for the aviation industry, the worst is now behind them. And so for ancillary industries and related businesses, it should be all up from here.

Solid Earnings

Bank of America’s upgrade and their bullish comments came on the back of the Garmin’s Q3 earnings report which was released last Wednesday in what was surely a week to remember for Garmin bulls. Both revenue and EPS beat analyst expectations with the former coming in 19% higher than the same print last year. Even a tighter gross margin wasn’t enough to put investors off and the general consensus was that the company is well-positioned for a strong Q4 which has historically been a strong quarter.

CEO Cliff Pemble spoke to this specifically when he said “demand for active lifestyle products fueled strong revenue growth resulting in record revenue and profits for the quarter. Interest in our products remains high as we move into the important holiday selling season, and we are prepared with a strong lineup of products that offer the innovation and uniqueness that consumers want.”

Getting Involved

Management also saw fit to raise their full-year outlook which is typically seen as an uber bullish signal and tends to lift off the cap in terms of upside. So for investors thinking about getting involved, there’s no time like the present. Garmin has a ton of cash, more than $1 billion at the last count, and zero debt. On top of that, their earnings are growing at an annual rate of more than 20%.

They’ve come through the pandemic relatively unscathed if not stronger than ever and that momentum is likely to stick around for some time yet.