I don't want to get too aggressive ahead of the Fed. $111 is about 6% below where I let go of the stock Friday, and part of my reason at the time was I wanted to (a) lock in gains ahead of the earnings report and (b) raise cash. I've since raised cash from many other positions, so I can now begin to re-allocate back into the stock. This has been a very volatile stock of late, so it has afforded some nice 'trading' opportunities. The last time I entered this stock was off the ridiculous hit it took off Navteq (NVT) aquisition by Nokia (NOK) - that one worked out well.
1) Garmin announced a hostile bid of $3.3 Billion for digital mapping company Tele Atlas
- Garmin's offer is 15 percent higher than an offer from Dutch rival TomTom N.V. that had been endorsed by Tele Atlas' board.
- "Given the high growth and rapid change the navigation market has undergone to date, we feel that now is the right time for Garmin to move ahead with this proposed combination with Tele Atlas," Garmin Chairman and CEO Min Kao said in a release. "Together, we believe that we can create the best available mapping solutions for our customers around the world."
- In a release posted on its Web site, Tele Atlas acknowledged Garmin's bid. The company said it will review terms and conditions of the offer and inform the market of its intentions "as soon as reasonably possible."
- Personal navigation device maker Garmin Ltd. said Wednesday its third-quarter profit increased 57 percent on revenue growth across all regions and business segments, particularly automotive.
- Net income rose to $193.5 million, or 88 cents per share, compared with $123 million, or 56 cents per share, a year ago. Excluding foreign exchange impact, earnings climbed to 89 cents per share from 50 cents per share. Analysts surveyed by Thomson Financial expected earnings of 82 cents per share.
- Quarterly revenue leaped 79 percent to $728.7 million from $408 million in the previous year, surpassing Wall Street's estimate of $683.2 million.
- Automotive/mobile segment revenue more than doubled to $519 million, while aviation sales grew 27 percent to $74 million. Outdoor/fitness segment revenue climbed 24 percent to $88 million and marine segment sales increased 17 percent to $48 million.
- North American revenue surged 71 percent to $454 million, while European sales jumped 89 percent to $227 million. Asia revenue more than doubled to $48 million.
- The personal navigation device maker now anticipates net income of more than $3.40 per share, up from its prior forecast for earnings of more than $3.15 per share. (in line with analysts $3.42, which will now be raised to something like $3.55-$3.60)
- Garmin expects 2007 revenue of more than $2.9 billion. It previously predicted full-year sales of at least $2.8 billion.
Takeaway: Garmin is not my favorite name - in the end its a hardware stock whose gross margins will come under attack as it becomes commoditized (in due time). It's a matter of when with this stock. For now though, it appears to continue to be executing and business is still ramping very well. Gross margins were down, but only 180 basis points from a year ago with some stabilization in automotive and aviation, offset by marine and outdoor/fitness. As important operating margin is relatively flat from year ago (down just 30 basis points); however the company is guiding for lower margins in the future (not a surprise, or should not be).
While this aquisition is weighing on the stock, I think it is necessary and appropriate after the Navteq (NVT)-Nokia (NOK) combination.
At $110, Garmin trades at 31x my estimate for 2007 earnings of "$3.50s" - analysts peg 2008 at $4.07 currently, but a number closer to $4.25 will probably be the target once they do their upgrades. So that's 26x next year's earnings for a company growing well in excess rate. Again, at some point the party for Garmin ends, and margins will compress so this stock should trade at some discount to growth rates - but at this level it seems the discount is too great. At least in my eyes; and especially with the holiday season approaching. With the support of the 50 day moving average below, it should provide a nice entry point and I would tag downside to be the recent lows of roughly $96.
While 90% of the positions I hold I do hold more as secular growth plays, Garmin is a quasi secular growth play - while I like the space, holding a software name with more protected margins would be the favored way to play the trend but with Navteq off the table, the GPS space is essentially Garmin and then a raft of second tier type of plays - so for now I stick with Garmin. I do like the opportunities overseas in this name however.
SA/SS
Long Garmin in fund and in personal account
