Garmin (GRMN) shares are trading lower this morning after Bank of America/Merrill Lynch analyst Vivek Arya this morning chopped his rating on the stock to Underperform from Buy, with a new price target of $26, down from $43. Arya said the bearish stance reflects “weak consumer spending trends and increasing risks from smart phone cannibalization.” He trims his 2010 pro forma EPS forecast to $2.85 from $3.07; for 2011, he goes to $2.92, from $3.24.
Arya notes that “domestic consumer and unemployment data are getting weaker,” and also points out that the company has about 30% exposure to the European market “where trends are likely much worse.” He ads that Q2 results could hold up on channel fill, but that it faces “negative summer seasonality” in the third quarter. He now sees 2010 units down 7% from last year, with a 10% drop in ASPs; his old forecast was for a 3% increase in units, and a 7% drop in prices.
On the smart phone front, he says that while they are not a perfect substitute for personal navigation devices, he notes that Android phones with free turn-by-turn navigation were being activated at the rate of 160,000 a day in June.
One offset: Arya says that the company’s strong balance sheet, with about $10 a share in cash, combined with strong cash flows and depressed valuation could attract interest from private equity investors.
GRMN today is off 78 cents, or 2.6%, to $29.02.
No comments:
Post a Comment