Garmin Limited Analysis – June 2015 Update $GRMN
Benjamin 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 or by reviewing the 5 Most Undervalued Companies for the Defensive Investor – June 2015. 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 stock analysis showing a specific look at how Garmin Limited (GRMN) fares in the ModernGraham valuation model.
Company Profile (obtained from Google Finance): Garmin Ltd. (Gramin) is provider of navigation, communication and information devices and applications, many of which are enabled by Global Positioning System (GPS) technology. Garmin designs, develops, manufactures and markets a range 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. The Company operates five segments, including Automotive/Mobile, Aviation, Marine, Outdoor and Fitness. As of December 28, 2013, Garmin’s non-aviation products are sold in approximately 100 countries through a worldwide network of approximately 4,000 independent dealers. The Company sells its products in the United States, Europe, Middle East, Australia/New Zealand and Africa.
Defensive Investor – must pass at least 6 of the following 7 tests: Score = 6/7
- Adequate Size of Enterprise – market capitalization of at least $2 billion -Â PASS
- Sufficiently Strong Financial Condition – current ratio greater than 2 -Â PASS
- Earnings Stability – positive earnings per share for at least 10 straight years -Â PASS
- Dividend Record – has paid a dividend for at least 10 straight years – PASS
- 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 -Â FAIL
- Moderate PEmg ratio – PEmg is less than 20 -Â PASS
- Moderate Price to Assets – PB ratio is less than 2.5 or PB x PEmg is less than 50 -Â PASS
Enterprising Investor – must pass at least 4Â of the following 5 tests or be suitable for a defensive investor: Score = 4/5
- Sufficiently Strong Financial Condition, Part 1 – current ratio greater than 1.5 -Â PASS
- Sufficiently Strong Financial Condition, Part 2 – Debt to Net Current Assets ratio less than 1.1 -Â PASS
- Earnings Stability – positive earnings per share for at least 5 years -Â PASS
- Dividend Record – currently pays a dividend -Â PASS
- Earnings growth – EPSmg greater than 5 years ago -Â FAIL
Valuation Summary
Key Data:
| Recent Price | $44.37 |
| MG Value | $11.12 |
| MG Opinion | Overvalued |
| Value Based on 3% Growth | $38.49 |
| Value Based on 0% Growth | $22.56 |
| Market-implied growth rate | 4.11% |
| NCAV | $7.46 |
| PEmg | 16.71 |
| Current Ratio | 3.03 |
| PB Ratio | 2.45 |
Balance Sheet – March 2015
| Current Assets | $2,500,000,000 |
| Current Liabilities | $824,000,000 |
| Total Debt | $0 |
| Total Assets | $4,543,000,000 |
| Intangible Assets | $224,000,000 |
| Total Liabilities | $1,066,000,000 |
| Outstanding Shares | 192,300,000 |
Earnings Per Share
| 2015 (estimate) | $2.95 |
| 2014 | $1.88 |
| 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 |
Earnings Per Share – ModernGraham
| 2015 (estimate) | $2.65 |
| 2014 | $2.56 |
| 2013 | $2.94 |
| 2012 | $2.92 |
| 2011 | $3.10 |
| 2010 | $3.29 |
Dividend History
Conclusion:
Garmin Limited qualifies for both the Defensive Investor and the Enterprising Investor.  The Defensive Investor is only concerned with the insufficient earnings growth over the last ten years.  The Enterprising Investor is concerned with the lack of earnings growth over the last five years.  As a result, value investors following the ModernGraham approach based on Benjamin Graham’s methods should feel comfortable proceeding further with an analysis.  As for a valuation, the company appears to be overvalued after seeing its EPSmg (normalized earnings) drop from $3.10 in 2011 to only an estimated $2.65 for 2015.  This level of demonstrated earnings growth does not support the market’s implied estimate of 4.11% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model, based on Benjamin Graham’s formula, returns an estimate of intrinsic value well below the price.
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.
Disclaimer:  The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  Logo taken from Wikipedia for the sole purpose of identifying the company; this article is not affiliated with the company in any manner.
