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Garmin (GRMN) Recommendation: Buy Industry: Communication Equipment Recent Price $59.37 Analyst: Jennifer Traynor Target Price $60.76 Report Date: 5/2/2007 Highlights • Large-cap growth stock with a market cap of $11.68 billion. • Garmin has the number one GPS market share of 50% in the U.S. and the number two GPS market share in Europe of 16.7% • Consumer demand for GPS products will continue to increase as technology improves and produces new and innovative products. • High historical ROIC, ranging from 39.4% to 47%, which is significantly higher than its 11% WACC. • Garmin’s revenue is likely to grow 35% per year for the next five years. • Target price of $60.76, is based on a P/E multiple valuation using a P/E of 19.6. • The major…show more content…
Based on the assumptions that Garmin will continue to have high sales growth that contributes to tangible free cash flows, this trend is forecasted to continue for as long as the next ten years. ROIC is forecasted to be 40% and above for the next six years. After that, it will taper down to 28.2% in 2016. Garmin has outperformed the industry and the S&P 500 in sales growth on average over the last five years. Garmin’s five year sales growth average of 35.04% is 19.2% higher than the industry average and 23.6% higher than the S&P. Below is Garmin compared to the S&P 500, Cobra, and Motorola. Source: Garmin has also outperformed the industry and the S&P in net profit margin. Garmin’s five year net profit margin of 29.39% is 24.8% higher than the industry average and 17.08% higher than the S&P. Using the assumptions made in the DCF model, Garmin’s forecasted P/E ratios for the next five years are: 20.72, 17.01, 13.88, 11.24, and 9.43. Garmin has said that they expect revenue to exceed $2.5 billion and EPS to exceed $2.70 in 2007. Garmin has also been steadily increasing EPS over the last five years by an average of 39.9% each year and is forecasted to continue this growth. Profitability and Cash Flows Garmin’s revenue can be broken down into three geography areas and four product segments. As you can see, Garmin has increased its market share of GPS devices in both Europe and Asia.
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