UPDATE: Raymond James Downgraded Garmin Based on Current Fair Value
In a report published Thursday, Raymond James analyst Tavis McCourt downgraded Garmin Ltd (NASDAQ: GRMN) from Outperform to Market Perform despite the company's strong 3Q13 results.
McCourt noted that the stock shares are fairly valued at a 40 percent appreciation over the past few months and the analyst already included new products in forward estimates. Raymond James commented, "We remain positive on Garmin's diverse opportunities in applying wearable computing to specific niches and its OEM Aviation and Marine businesses, but the risk/reward appears more balanced after the strong rally since May."
Garmin reported 3Q13 revenue of $643.6 million, 4.3 percent above the analyst's estimate, and a non-GAAP EPS od $0.69 versus Raymond James estimate of $0.52. The company noted solid earnings in the Auto/ Mobile segment and reported that Fitness and Marine did better than expectations.
McCourt commented on the strong rebound on sales of Vector: "Though a niche product, Vector's high retail price of $1,700 makes it meaningful to Fitness results."
Garmin's EBIT margin for the third quarter came in almost 24 percent above the analyst's estimate due to lower operating expense and stronger revenue. Garmin forecasts an approximate 21 percent operating margin and increased the non-GAAP EPS from $2.30- $2.40 to $2.40- $2.45.
Raymond James consequently raised 2013 non-GAAP EPS estimates from $2.36 to $2.45 and 2014 estimates from $2.39 to $2.45. The analyst concludes that shares could permanently trade in the $50 range pending on Garmin's execution, new product category and EPS growth over 2014-2015.
Garmin closed at $48.27 on Wednesday.
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