Worldwide provider of navigation, communications and information devices, Garmin Ltd.’s (GRMN) shares fell 4.6%, touching a low of $56.69, before closing a notch higher at $57.86. The decline came after research firm Pacific Crest downgraded the company from Sector Perform rating to Underperform.
The firm’s analyst, Brad Erickson, revised the rating on expectations of weak demand for Garmin’s outdoor and PND products primarily due to increased competition from GoPro, Inc. (GPRO) and Apple’s (AAPL) upcoming iWatch and iPhone. Additionally, surplus inventory for Garmin’s Vivofit products in the fitness business played a role in the downgrade.
Per Erickson, the launch of Apple’s iWatch in October might have an impact on the demand for Garmin’s wearable devices. Additionally, Erickson expects iPhone's larger screen to further lower the demand for personal navigation devices (PND), impacting Garmin’s sales and profit figures.
In the Outdoor business, Garmin has been making efforts to increase its share in the action camera market with its VIRB products. However, according to Erickson, action camera market is already dominated by GoPro’s popular action sports oriented cameras and accessories, hurting Garmin’s VIRB products which are in the early stages of adoption.
Garmin is one of the leading providers of navigation devices in outdoor/fitness, aviation, marine and automotive markets. Although competitive pressures could impact its profitability, the company is successfully diversifying its business away from the shrinking PND market to new target markets, all of which carry higher margins and have enough room for growth.
In fact, in the last reported quarter, Garmin’s top as well as bottom line surpassed the Zacks Consensus Estimate backed by strong growth in new products. Additionally, last month, Garmin hiked its quarterly dividend by 6.7% indicating its confidence in steady cash flows.
Garmin currently sports a Zacks Rank #1 (Strong Buy). Another stock that is performing well at the current levels includes Advanced Micro Devices, Inc. (AMD) with the same Zacks Rank as Garmin.
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