Garmin's stock on track for biggest one-day decline in almost two years after BofA downgrade to sell

By Ciara Linnane

BofA says stock is priced to perfection - meaning there's only downside risk in the near term

Garmin Ltd.'s stock fell 4.9% Wednesday to put it on track for its biggest percentage decline in almost two years after BofA analysts downgraded the stock to the equivalent of sell.

The last time the stock fell that much was July 27, 2022, when it fell 8.7%, according to Dow Jones Market Data. Garmin's stock (GRMN) is down for three of the past five days, although it's still up 26% in the year to date, outperforming the S&P 500's SPX 12% gain.

BofA downgraded the stock to underperform from neutral on Wednesday and said it's priced to perfection - meaning there's only downside risk in the near term.

The Swiss maker of navigation devices and fitness trackers is an "excellent operator with differentiated product but the current valuation appears unsustainable in our view," analysts led by Ronald J. Epstein wrote in a note to clients.

Garmin swept past earnings estimates for the first quarter, posting per-share earnings that were 40% above the FactSet consensus. Chief Executive Cliff Pemble said four of the company's five segments saw double-digit growth, driven by robust demand trends and a strong product portfolio.

"In 1Q, Garmin has stood apart from peers demonstrating the strength of their brand, resiliency of their customers, and ignited growth across segments," the BofA analysts wrote. "Now, however, we worry the momentum is decelerating which implies the current valuation is unsustainable."

BofA also lowered its stock price target to $150 from $165.

"Until we see a case for the aggressive 2025E consensus EPS target, valuation appears too rich with potential downside in the near-term," said the note.

Garmin's stock is currently trading at about 25.5 times price/earnings for 2025, which places it well above comparable names in consumer electronics, fitness/apparel, aerospace and autos, according to the note. It's trading more in line with premium tech names, including Apple Inc. (AAPL) and Nvidia Corp. (NVDA), surpassing even luxury retailers like LVMH Moet Hennessy Louis Vuitton SE (FR:MC) and Moncler S.p.A. (IT:MONC), said the analysts.

Garmin's products seem to be an exception to the trend of consumers pulling back on spending, but that may change, said the note.

The BofA April Consumer Survey found respondents planning to spend less on vehicles, electronics and apparel - and expecting to pay more for groceries over the next three months.

"We see this as potentially deterring an incremental Garmin buyer," the analysts wrote.

-Ciara Linnane

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05-22-24 1310ET

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