Credit Suisse Downgrades Garmin To A 'Relative' Underperform

• The share price of Garmin Ltd. GRMN has declined 35.52 percent over the past one year, down to a low of $32.46 on January 13.
• Robert Spingarn of Credit Suisse has downgraded the rating on the company from Neutral to Underperform, while lowering the price target from $37 to $32.
• Given the company’s low-growth profile, volatile top line and intense competition in the consumer segments, Spingarn believes that investors would look for more “meaningful” capital deployment before investing.

Analyst Robert Spingarn mentioned, however, that Garmin’s current dividend yield was attractive at about 6 percent, which also potentially set a floor to the stock valuation.

Spingarn expects growth in the fitness category to start to level out in the low double digits, “assuming intensified competition and a consistent stream of new product introductions/upgrades.”

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Pricing, however, continues to be “very aggressive,” with gross margins declining to 54.5 percent in 2015 from 63 percent in the two earlier years.

The auto category is expected to see “continued secular decline with mid-to-high teens revenue contractions, while general aviation remains weighed down by macro, where recent concerns have driven more conservative behavior on the part of OEMs,” according to the Credit Suisse report.

However, aviation topline is expected to accelerate in 2016-17, while the Marine category is expected to grow at a CAGR of 10 percent through 2017, driven by market share gains. Growth in the Outdoor category is likely to be muted in the low single digits.

Overall, Spingarn expects Garmin to see flat topline over the next two years, with an EPS CAGR of 3 percent.