Q2 2013 Earnings Release

Net sales are down 3% y-o-y, led by the anticipated ongoing decline of Automotive/Mobile division. Meanwhile, all other operating segments posted exceptional performance, driven by 16% growth in Aviation and high single-digit increases in Outdoor and Marine. Notably, management has reiterated their 2013 guidance and expects operating income to trend towards the higher end of their previous projections.

Investment Action

Adjusted FCF yield spread is down to 9.7%, even as US 10- year Treasury bond yield increased to 2.59%. As a result, the spread has compressed to 7.1%, vs 10.6% when the report was first published - an indication that the market has begun to recognize the value of its other segments. We recommended “Trading Buy” on 7th June 2013, and the stock has since returned 16%. Now that the thesis has generally played out, we recommend a TRADING SELL (Target Price: USD 40.08) on GRMN at the current price of $40.08 to take advantage of positive sentiments (Garmin’s share price closed 7.57% higher after earnings release) and lock in the gains.

Source: PhillipCapital Research - 2 Aug 2013