5 Reasons Garmin Was Upgraded To Buy

Garmin Ltd. GRMN shares are trending after analyst Joe Wittine of Longbow Research upgraded the stock to Buy from Neutral with a $60 price target.

Wittine believes bullish trends in Garmin's Aviation, Outdoor, and Marine divisions could offset the secular difficulties in low-end fitness trackers and PNDs.

Specifically, Wittine is optimistic due to five reasons:

• Wittine's research survey of various Aviation dealers showed "increased quoting activity" in both fixed wing, and rotorcraft, which could indicate increased demand.
• The analyst believes the Fenix 5 platform is expanding Garmin's base in the Outdoor section and that the company's Prime Day discounting likely cleared a lot of inventory of the previous Fenix 3 HR.
• Wittine believes Garmin's Marine division should benefit from the current robust demand in aftermarket parts.
• Wittine believes the company's valuation has "become more approachable" due to the stock's mild decline and stronger earnings power. The stock trades at just under 12x 2017E EBITDA, which makes the stock slightly undervalued versus its low-growth peers and as much as 15-25 percent undervalued versus higher yield peers.
• Due to the company's price and potential, Wittine believes there's "more compelling risk reward."

The analyst added, '[G]ains in Aviation, Outdoor, and Marine appear enough to fuel a 2017 guidance raise with the 2Q report and return GRMN to a growth story in 2018... This favorable mix shift should grow earnings, as the three growth businesses carry ~15% higher GM and ~10% higher EBIT margin, which could in turn, improve GRMN's multiple."

At time of publication, the stock traded up 2.8 percent at $51.64.