Garmin (GRMN) Downgraded By Goldman Fearing Competition

Worldwide provider of navigation, communications and information devices Garmin Ltd. (NASDAQ:GRMN) was downgraded to Sell from Hold by Goldman. In addition, the firm’s analyst maintained its price target of $46.00.

Following the news, Garmin's share price slid more than 5%.

Why the Downgrade?

Goldman analyst, Simona Jankowski, remains concerned about increasing competition in the Fitness segment of the wearables market.

The analyst believes that the new and refreshed Apple’s (AAPL) iWatch might have an impact on demand for Garmin’s wearable devices, especially in the core GPS fitness watch category. Also, Fitbit’s (FIT) two new products, namely Charge 2” and “Flex 2” activity tracking bands, expected to come in September, could add to Garmin’s woes, significantly hurting its Fitness sales going forward.

Moreover, the analyst believes that, going forward, the wearables market will be crowded by a few new product offerings outside the Fitness segment, namely virtual reality, home automation and drones. This could significantly reduce Garmin’s share in the wearables market.

Goldman analyst, Simona Jankowski, said that "though fitness products were a hot seller over the past two holiday seasons, this holiday season they will see increased competition for consumer wallets from a few new emerging consumer electronics categories, including virtual reality headsets, home assistants and drones."

The analyst believes that slowing growth in Garmin’s wearable fitness device business will impact its profitability.

Conclusion

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 striving to diversify its business away from the shrinking PND market and into newer, high-margin markets which offer strong growth opportunities.

In the recently reported second quarter, Garmin’s reported robust results with both earnings and revenues surpassing the Zacks Consensus Estimate. The results were driven by matching performance in each and every segment.

Notably, the Fitness segment increased a massive 49.5% sequentially and 34.2% year over year in the second quarter. The growth has mainly been sourced from sale of new products like vivoactive HR and vivofit 3 activity trackers, Forerunner 735XT multi-sport-capable running watch and vivosmart HR + smart activity tracker with GPS.

Though management is focused on continued innovation to deliver compelling products across the served markets, macroeconomic challenges remain part of the operating environment.

Garmin sports a Zacks Rank #1 (Strong Buy).

Other Stocks to Consider

Some other well-placed stocks in the same space are Silicon Laboratories Inc. (NASDAQ:SLAB) with a Zacks Rank #1, and Intel Corp. (NASDAQ:INTC) and Inphi Corporation (NYSE:IPHI) , each carrying a Zacks Rank #2 (Buy).

GARMIN LTD (GRMN): Free Stock Analysis Report

INTEL CORP (INTC): Free Stock Analysis Report

SILICON LAB INC (SLAB): Free Stock Analysis Report

INPHI CORP (IPHI): Free Stock Analysis Report

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