Garmin Downgraded by Citigroup Fearing Strong iWatch Sale

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Worldwide provider of navigation, communications and information devices, Garmin Ltd. (GRMN Analyst Report) was downgraded to Sell by Citigroup. In addition, the firm’s analyst, Jeremy David, lowered the price target to $42.00 from $68.00.

Per David, the upcoming launch of Apple’s (AAPL Analyst Report) iWatch might have an impact on the demand for Garmin’s wearable devices, especially in the core GPS fitness watch category. Brian White, an analyst from Cantor Fitzgerald, expects Apple to sell 20.6 million iWatches in its first year, while Gene Munster, from Piper Jaffray, expects 1 million iWatches to be sold in the very first week. The increased popularity of Apple’s products along with the likely addition of GPS and expectations of lower price points in future versions of iWatches could significantly hurt Garmin’s Fitness sales over the long term.

Garmin plans to deliver innovative products in the fitness market and expects Fitness to be the largest contributor of revenues in 2015. However, David anticipates Garmin’s Fitness revenues to accelerate in the near term but decline after 2016 due to increasing competition, especially from Apple.

Going forward, the analyst believes that the fitness market will be crowded by new product offerings from Fitbit and TomTom, hurting Garmin’s products, thus reducing Garmin’s share in the fitness market.

Also, Garmin has been making efforts to increase its share in the Outdoor business action camera market with its handheld GPS devices, golf GPS devices (handhelds and watches), dog tracking and training products and the VIRB products. However, according to David, golf GPS devices, which account for a significant amount of outdoor sales, could likely witness a decline in 2015, impacting Garmin’s sales.

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 toward newer, high-margin markets which offer strong growth opportunities.

In the fourth quarter, reported recently, Garmin’s top line surpassed the Zacks Consensus Estimate backed by strong growth in new products but the bottom line of 77 cents missed the consensus mark by a penny.

Also, Garmin expects revenues and margins to remain flat in full-year 2015. The weak outlook along with increasing competition from Apple has triggered a downward momentum in the company’s estimates in the recent times. In fact, the Zacks Consensus Estimate for the first quarter was lowered 4% to 58 cents and that for full-year 2015 was revised down 3% to $3.08.

Garmin currently has a Zacks Rank #3 (Hold). A couple of stocks that are performing well at the current level include Universal Electronics Inc. (UEIC) and Webster Financial Corp. (WBS) carrying a Zacks Rank #2 (Buy).

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