Citi, Morgan Stanley At Odds Over Garmin

Shares of Garmin plunged nearly 15 percent on Thursday and hit a new 52-week low of $31.86 after the company pre-announced its third-quarter results negatively.

The company cited "pricing dynamics, particularly in the fitness segment," along with foreign exchange headwind, and soft demand within its aviation and outdoor segments.

Garmin reported third-quarter earnings of $0.51 per share on revenue of $680 million. The company also revised its 2015 revenue estimate lower by around $100 million to $2.8 billion.

Citi: Pre Announcement Confirms Continued Competitive Headwinds

Jeremy David of Citi commented in a note that Garmin has now issued a negative pre-announcement in two consecutive quarters.

Related Link: Garmin Premarket Decline Being Attributed To Co. FY EPS And Rev Guidance Cut

David noted that the pre-announcement is indicative of a continued competitive environment and that its fitness moat is "rapidly eroding." Meanwhile, its aviation business is "soft," as the company is "clearly not immune" to the ongoing weak business jet environment.

Finally, David argued that Garmin will see "little upside" from the launch of its Forerunner watch as it is not expected to have a built-in heart monitor, which is the "killer feature" that consumers now expect to come standard.

Shares remain Sell rated with a price target lowered to $30 from a previous $35.

Morgan Stanley: Pre-Announcement ‘Resets' Expectations

James Faucette of Morgan Stanley commented in a note that Garmin's guidance for its fitness segment has been revised to a 15 percent growth rate (down from a previous 25 percent growth rate), which is still above his 13 percent expectations.

Faucette continued that Garmin's "reset" expectations puts the company in a better position ahead of the holiday season, and the revised guidance should be obtainable.

In fact, the analyst noted that his checks last quarter confirmed prior guidance was "too ambitious."

On the other hand, recent checks found fitness band inventories "moderating somewhat" at retail locations, while sell-through for running watches "remained steady."

Bottom line, Garmin revised its "unrealistic" fitness target and "help(ed) reset" investor expectations heading into the holiday season.

Shares remain Equal-weight rated with an unchanged $45 price target.