RBC Maintains Outperform On Garmin Ahead Of 'Important Holiday Season For Wearables'

• Shares of Garmin Ltd. GRMN have declined 32.46 percent year-to-date, reaching a low of $35.39 on November 13.
• RBC Capital’s Mark Sue has maintained an Outperform rating on the company, with a price target of $40.
• In the near term, the company’s dividend yield of 6 percent, along with the current stock valuation, offers a reasonable risk-reward profile, especially if “Garmin sharpens its execution.”

Analyst Mark Sue believes, “Garmin is rushing out a slew of new health and fitness products while increasing advertising spend to drive back share gains in its goal to be a serious contender in consumer wearables.”

Following the 23 percent year-on-year growth during Q3, Sue believes that Q4, which is a seasonally strong quarter, would be an important “barometer” of the company’s new fitness offerings, along with the effectiveness of its increased advertising efforts.

Increased interest in and adoption of wearables has prompted Garmin to step up its advertising, not only to “connect with the broader mainstream audience,” but also to “combat advertising” from competitors.

Sue expects Garmin to spend 20 percent of its sales on SG&A for CY15. “Garmin expects strategic advertising focused on Fitness to remain near current elevated levels and its new “Beat Yesterday” media campaign is currently running in the market,” Sue stated.

New products from Garmin for the holiday season include the Elevate heart rate sensor, which addresses “an increasingly important feature to the running market.” The company has also updates its Connect Mobile platform to support its entire ecosystem.

“Assuming there’s not another step-change function down in FX rates, Garmin should start lapping some of the tough YoY comps in 1Q16,” the RBC Capital report added.