The Bottom Is In For Garmin Stock

Key Points

• Garmin reported a mixed quarter but shares are firming. 
• Business is down YOY but the bottom is in and guidance is positive. 
• The dividend is attractive at 3.0% and looks safe enough for 2023. 

If Garmin NYSE: GRMN has anything to its credit, and it has quite a lot, it has diversification. This technology powerhouse makes and markets a wide range of gadgets and components used by governments, businesses and individuals in use cases that span all verticals. If one segment sees weakness, another will see strength, which has helped sustain the business through good times and bad. The point is that one of those bad times is ending.

The company’s Q4 results and guidance confirm the analysts were expecting much worse, even though that was not reflected in their estimates. The outlook for 2023 is also less-bad than it could have been, and the dividend appears to be as safe as ever. Investors should not expect this dividend to grow in 2023; the board would recommend another payout at the same level as in 2022. 

“The board of directors intends to recommend to the shareholders for approval at the annual meeting to be held on June 9, 2023, a cash dividend in the amount of $2.92 per share (subject to possible adjustment based on the total amount of the dividend in Swiss Francs as approved at the annual meeting), payable in four equal installments on dates to be determined by the board,” said Garmin in the Q4 press release. 

Trading at 19X earnings, this stock is not a bargain, but its value is not astronomically high. The dividend is more than double the S&P 500, and it is safer-looking than some considering recent cuts by Intel NASDAQ: INTC and V.F. Corporation NYSE: VFC. Those dividends were “right-sized” to come back in line with earnings and CAPEX outlook; Garmin does not need to do that. It is paying only 50% of its earnings and is debt-free. 

Garmin Firms On Better-Than-Expected Margin 

Garmin had a meh quarter regarding revenue and analysts. The company posted $1.31 billion in net revenue which is a decline of 6% compared to last year. This is slightly below the analysts' consensus but comes with a better-than-expected margin. On a segment basis, the Fitness segment saw the most significant decline at 28%, while Aviation showed the most significant increase in business at 27%. In between, Outdoor, Marine and Automotive grew by 3%, 7% and 14%. 

The margin was mixed because the gross margin improved by 150 bps while the operating margin contracted. This led to a decline in earnings that outpaced the decline in revenue but far less than expected—the $1.35 in adjusted EPS is down YOY but $0.18 ahead of consensus. Looking forward, the guidance is equally tepid but at least expects revenue and earnings growth albeit slower than the analysts were forecasting. 

The Analysts Help Put The Bottom In Garmin 

The analysts have Garmin pegged at a Moderate Buy despite the downward drift in the consensus price target since last year. The price target is now based on Barclays and Morgan Stanley updates, but even this news is mixed. The updates have the consensus target firming and up 24% compared to the recent price action but are well below that consensus. These firms see Garmin trading at fair value while at its current levels. 

The chart looks good despite the mixed news and shows a Head & Shoulders reversal pattern. The pattern looks strong due to the new green candle formed following the Q4 news. This candle confirms support at the 150-day moving average and a bullish signal in the indicators. MACD and stochastic are both bullish, with stochastic firing a crossover.

This should get the stock up to the neckline near $105, which is the key level to break. If the market can get above there, a rally may follow. If not, this stock will be range bound for the foreseeable future.