Barclays (LON:BARC) has issued a new rating for Garmin Ltd . (NYSE: NYSE:GRMN), downgrading the stock from Overweight to Equal Weight and significantly reducing its price target from $181 to $133.
The adjustment reflects concerns over the company's valuation, which the firm deems overly extended compared to its historical average.
The revised outlook is influenced by several factors, including a premium valuation above the historical average multiple and limited visibility into the company's performance for 2025.
The muted consumer hardware spending environment is also cited as a contributing factor to the downgrade.
The analyst predicts that there may have been an advance in spending for Garmin in the first half of the year, which could potentially lead to lower growth in the future.
A negative shift in product mix is expected to impact Garmin's valuation, with a forecasted decline in gross margins due to a lower proportion of high-margin Aviation revenue in the second half of 2024 compared to the first half.
Additionally, an increased share of Automotive OEM revenue, which carries lower margins, is anticipated. This shift is expected to lead to lower gross margins in 2025, with the outperformance of the low-margin Auto OEM business exerting pressure on price-to-earnings multiples.
Barclays has applied a 22x price-to-earnings ratio to Garmin's projected 2024 earnings per share of $6.05, aligning the valuation with the historical five-year average.
InvestingPro Insights
The recent downgrade of Garmin Ltd. (NYSE:GRMN) by Barclays due to concerns over valuation and future performance contrasts with some positive indicators observed in real-time data. According to InvestingPro data, Garmin's market capitalization stands at a robust $35.13 billion, with a P/E ratio of 25.42, suggesting a market sentiment that values the company's current earnings. The firm's revenue growth over the last twelve months is a notable 14.92%, indicating a strong top-line performance.
Two InvestingPro Tips highlight Garmin's financial health: the company holds more cash than debt on its balance sheet, providing financial flexibility, and has raised its dividend for 7 consecutive years, reflecting a commitment to returning value to shareholders. Additionally, Garmin has maintained dividend payments for 22 consecutive years, which could be attractive to income-focused investors.
For readers interested in a deeper analysis, there are 15 additional InvestingPro Tips available, which include insights on earnings revisions, valuation multiples, and stock volatility, among others. These tips can be accessed for further financial evaluation of Garmin at https://www.investing.com/pro/GRMN.
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