Garmin Ltd (GRMN) Quarterly Valuation

500px-Garmin_logo.svgBenjamin Graham taught that Intelligent Investors must do a thorough fundamental analysis of investment opportunities to determine their intrinsic value and inherent risk.  This is best done by utilizing a systematic approach to analysis that will provide investors with a sense of how a specific company compares to another company.  By using the ModernGraham method one can review a company’s historical accomplishments and determine an intrinsic value that can be compared across industries.  What follows is a specific look at how Garmin Limited fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): Garmin Ltd. (Garmin) is a provider of navigation, communication and information devices and applications, which are enabled by global positioning system (GPS) technology. Garmin designs, develops, manufactures and markets a diverse family of hand-held, portable and fixed-mount GPS-enabled products and other navigation, communications and information products for the automotive/mobile, outdoor, fitness, marine, and general aviation markets. Garmin has four segments: Automotive/Mobile, Aviation, Marine, Outdoor and Fitness. In September 2012, its subsidiary acquired Nexus Marine AB, a designer and manufacturer of instrumentation for the sailing and yachting market.

GRMN Chart

GRMN data by YCharts

Defensive Investor – must pass at least 6 of the following 7 tests: Score = 6/7

  1. Adequate Size of Enterprise – market capitalization of at least $2 billion – PASS
  2. Sufficiently Strong Financial Condition – current ratio greater than 2 – PASS
  3. Earnings Stability – positive earnings per share for at least 10 straight years – PASS
  4. Dividend Record – has paid a dividend for at least 10 straight years – PASS
  5. Earnings Growth – earnings per share has increased by at least 1/3 over the last 10 years using 3 year averages at beginning and end of period – PASS
  6. Moderate PEmg ratio – PEmg is less than 20 – PASS
  7. Moderate Price to Assets – PB ratio is less than 2.5 or PB x PEmg is less than 50 – FAIL

Enterprising Investor – must pass at least 4 of the following 5 tests or be suitable for a defensive investor: Score = 4/5

  1. Sufficiently Strong Financial Condition, Part 1 – current ratio greater than 1.5 – PASS
  2. Sufficiently Strong Financial Condition, Part 2 – Debt to Net Current Assets ratio less than 1.1 – PASS
  3. Earnings Stability – positive earnings per share for at least 5 years – PASS
  4. Dividend Record – currently pays a dividend – PASS
  5. Earnings growth – EPSmg greater than 5 years ago – FAIL

Valuation Summary

Key Data:

Recent Price $54.50
MG Value $15.71
MG Opinion Overvalued
Value Based on 3% Growth $42.58
Value Based on 0% Growth $24.96
Market-implied growth rate 5.03%
NCAV $7.05
PEmg 18.56
Current Ratio 2.87
PB Ratio 2.91

Balance Sheet – 12/28/2013

Current Assets $2,595,600,000
Current Liabilities $905,300,000
Total Debt $0
Total Assets $4,879,600,000
Intangible Assets $219,500,000
Total Liabilities $1,219,900,000
Outstanding Shares 195,150,000

Earnings Per Share

2013 $3.12
2012 $2.76
2011 $2.67
2010 $2.95
2009 $3.50
2008 $3.48
2007 $3.89
2006 $2.35
2005 $1.43
2004 $0.94
2003 $0.82
2002 $0.66

Earnings Per Share – ModernGraham 

2013 $2.94
2012 $2.92
2011 $3.10
2010 $3.29
2009 $3.28
2008 $2.92

Dividend History

GRMN Dividend Chart

GRMN Dividend data by YCharts

Conclusion:

Garmin is a strong company suitable for Defensive Investors and Enterprising Investors, but it doesn’t have a strong valuation at this time.  The company only fails the Defensive Investor’s PB ratio requirement, and the Enterprising Investor’s earnings growth over 5 years requirement.  As a result, value investors seeking to follow the ModernGraham approach based on Benjamin Graham’s methods should feel comfortable researching the company further and certainly keeping it on a watch list going forward.  One example of further research may to be review a list of 5 Undervalued Companies for the Defensive Investor or 5 Low PEmg Companies for the Defensive Investor.  As for the valuation, the company has seen a slight drop in EPSmg (normalized earnings) over the last 5 years, from $3.28 in 2009 to $2.94 for 2013.  This historical performance does not support the market’s implied estimate for earnings growth of 5.03%, and leads the ModernGraham valuation model to return an estimate of intrinsic value that trails the market price, indicating the company may be overvalued at the current time.  If the earnings improve significantly in 2014, and return the company to growth, then the valuation may improve.

The next part of the analysis is up to individual investors, and requires discussion of the company’s prospects.  What do you think?  What value would you put on Garmin Limited (GRMN)?  Where do you see the company going in the future?  Is there a company you like better?  Leave a comment on our Facebook page or mention @ModernGraham on Twitter to discuss.

If you like our valuations, why not check out ModernGraham Stocks & Screens?  It’s a great way to review the valuations while screening for things like low PE ratio, undervalued companies, etc.!

Disclaimer:  The author did not hold a position in Garmin Limited (GRMN) or any of the other companies listed in this article at the time of publication and had no intention of changing that position within the next 72 hours.

Logo taken from the Wikipedia; this article is not affiliated with the company in any manner.


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