Garmin (GRMN, Financial) stock fell by 5.92% after Barclays downgraded the shares from "equalweight" to "underweight" and reduced its price target from $181 to $133.
Over the past 52 weeks, Garmin's stock has risen by 64.27%, significantly outperforming the S&P 500. However, Barclays believes this growth is unsustainable and considers the stock "overly extended," suggesting it's time for investors to take profits.
In the latest quarter, Garmin's sales grew by 14%, but profits only increased by 4%. Barclays interprets this as an indication of a weak consumer hardware spending environment. Furthermore, the bank believes some sales expected in the second half of 2024 occurred in the first half, potentially reducing growth for the rest of the year.
Barclays also warns of a "negative mix shift" that could hurt profits more than sales. Specifically, the analyst expects Garmin to sell fewer high-margin aviation products and more low-margin automotive products in the second half of the year, leading to weaker gross profit margins.
Based on these factors, Barclays forecasts that Garmin will earn $6.05 per share in 2024 and suggests a valuation of 22 times earnings. Consequently, Barclays lowered its price target for Garmin to $133, implying a potential decline of up to 22% over the next 12 months beyond Friday morning's drop.
According to the latest stock data, Garmin (GRMN, Financial) is currently priced at $171.24 with a price-to-earnings (P/E) ratio of 23.95. Despite the downgraded forecast, Garmin maintains strong financial health. The company has an Altman Z-Score of 13.59, indicating it is in robust financial condition.
Garmin's financial strength is supported by a high Piotroski F-Score of 8, signaling a healthy situation. The company's profitability is indicated by its operating margin of 22.15% and a net margin of 24.36%. Garmin's return on equity (ROE) stands at 20.39%, showcasing effective management in generating returns on investments.
However, Garmin also faces several warning signs. Its operating margin has been in a 5-year decline, with an average annual decrease of -3.1%. Additionally, the company's stock price is close to a 10-year high, while the price-to-sales (P/S) ratio is near a 3-year high. These factors suggest that Garmin may be overvalued.
GuruFocus rates Garmin as "Significantly Overvalued" with a GF Value of $127.45. This suggests that the stock is trading above its intrinsic value, which could indicate potential risk for investors.
Despite the mixed signals, Garmin remains a strong company with predictable revenue and earnings growth. It has a consistent record of positive financial metrics, further solidified by its high Altman Z-Score and Piotroski F-Score. Investors should weigh these strengths against the risks highlighted by Barclays' downgrade and the stock's current overvaluation.
