Garmin GRMN reported better-than-expected fourth-quarter results as acquisitions and organic growth in the firm's narrow-moat segments along with fitness more than offset expected decline in auto. Strong growth in the higher margin outdoor and aviation segments drove overall gross and operating margin expansion. Management provided revenue guidance above our projection and consensus, helped partially by the recently announced acquisition of Tacx, a maker of widely used indoor bike trainers. However, the firm expects a slight decline in operating margin in 2019, after which we think it will expand again. We adjusted our estimates higher accordingly, and after rolling our model forward, we raised our fair value estimate of Garmin to $70 per share from $62. Our fair value estimate represents 2019 EV/Sales and EV/EBITDA multiples of 3.3 and 12, respectively, which we think is appropriate for a firm growing its top line at a single-digit rate accommodated with slightly lower margin this year, followed by moderate margin expansion through 2023. Garmin did raise its 2019 dividend by 8% that now yields 2.7%. We think this narrow-moat and high uncertainty name is now overvalued as the stock is surging 16% in response to fourth-quarter results.
Garmin's total revenue of $932 million during the quarter represented a year-over-year growth of 4%. Outdoor and aviation segments led the way with their revenue increasing 25% and 22%, respectively. Product refreshes, like the fenix 5 watches which were launched in late 2017 and include new features such as payments capabilities, music storage, and pulse oximeter (which measures blood oxygen levels), drove outdoor revenue growth. With launches of Descent watch (a dive computer with GPS navigation) and the more rugged Instinct watch mainly for hikers, plus likely the next version of fenix (fenix 6), outdoor revenue is expected to grow at least 10% in 2019, according to management.
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