Garmin Out of Shape as Its Fitness Business Sees Prepandemic Normalization; Lowering FVE to $140

Narrow-moat Garmin's second-quarter earnings disappointed as they missed our top- and bottom-line expectations. Endurance let up in the workout of beating tough fitness comparisons as demand has normalized to prepandemic levels. On top of tough fitness comparisons, Garmin is not immune to the macroeconomic headwinds of a strengthening U.S. dollar and elevated inflation as well as interest rates. Due to these headwinds, we are lowering our fair value estimate for Garmin shares to $140 from $150. Despite our revision, we reiterate our confidence that Garmin shares are still attractively priced. In our view, Garmin's current stock price of $95 overlooks long-lasting impacts of the pandemic on outdoor- and fitness-related habits of Garmin's customers—even if this quarter's results adjust the extent of that influence, and margin expansion that comes with such scale.