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Buy Garmin Stock at Highs Before Earnings as Long-Term Tech Play?

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Benjamin Rains
·4 min read
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The fourth quarter earnings season has once again showcased the technology sector’s power. The strength and ability of companies such as Amazon AMZN, Microsoft MSFT, and Apple AAPL to grow during the toughest conditions highlights why investors need to be exposed to tech at all times.

This means investors should likely try to look for tech names outside of the titans that are prepared to grow. Garmin GRMN, which hit record highs on Thursday, is one name that might be worth buying as it heads into the release of its fourth quarter 2020 financial results on February 17.

Way Beyond Smartwatches…

Garmin might have become a household name for its in-car GPS devices, smartwatches, and fitness trackers, but its portfolio is vast and goes far beyond consumer products. GRMN’s sells high-end fish finders and advanced radars for and systems boats as well as airplanes.

For instance, the company announced on Feb. 10 that it landed a long-term agreement with Joby Aviation that will see its Garmin G3000 integrated flight deck be utilized in the company’s “all-electric vertical takeoff and landing aircraft.” The futuristic craft is expected to start commercial operations in 2024. “Garmin looks forward to continuing our extensive history of proven success in introducing innovative avionics technologies aligned with our vision for urban air mobility and the broader aviation industry,” Garmin executive Phil Straub said in prepared remarks.

“We are confident the G3000 will ultimately help Joby provide advanced, efficient, and scalable air taxi services for years to come.”

Along with beefing up its bona fides in the future of aviation, the company in late January showcased its smallest smartwatch to date. With this in mind, Garmin beat our third quarter estimates at the end of October, with sales up 19% to $1.1 billion.

The company’s top-line expansion was driven by 54% growth in its marine business, 34% expansion in fitness, and a 30% jump in its outdoor space. The coronavirus environment saw people with disposal incomes buy boats at levels not seen since 2006. Meanwhile, fitness and getting more active has been a huge focus for many people, and Garmin is poised to benefit from a growing digital fitness market that features Peloton PTON, Lululemon’s LULU Mirror, and others.

Other Fundamentals

The nearby chart shows that GRMN has soared 275% in the last five years to crush the broader tech sector’s 195% growth. Garmin has cooled down a bit over the last year, up roughly 32% vs. its sector’s 41%. That said, the stock has surged 13% since the end of January to reach all-time highs of over $130 a share on Thursday.

Meanwhile, Garmin trades at 24.6X forward 12-month earnings. This marks a discount compared to its own year-long highs of 28.1X and its industry’s 29.1X, which is a good sign considering where the market is in terms of valuation and its own stock price.

Plus, the company closed last quarter with around $2.7 billion in cash and marketable securities. And Garmin’s 1.90% dividend yield matches the 30-year U.S. Treasury.

Zacks estimates call for Garmin’s revenue and adjusted earnings to climb by roughly 6% in the fourth quarter. And its full-year fiscal 2020 revenue is projected to jump 6.5% to reach $4 billion, with FY21 projected to climb another 8.2% higher.

These estimates would come on top of FY19’s 12% growth and compare favorably to FY18’s 7% sales growth. GRMN’s adjusted earnings are expected to post similar expansion rates during this stretch.

Bottom Line

Garmin lands a Zacks Rank #2 (Buy) at the moment. And the company boasts a solid history of earnings beats, including a 56% beat last quarter and a 140% beat in Q2. Therefore, longer-term investors might want to consider this dividend-paying tech stock that’s exposed to multiple industries including flying taxis.

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