Target $75 on Garmin Shares
Garmin, Ltd. (GRMN) is an OEM of GPS-based equipment. March quarter results fell short of the consensus on both the top and bottom lines. All segments were up double-digits in 2007, and are expected to be up double-digits again in 2008. Pricing pressures continue to intensify, negating some of the growth in units.
Management is optimistic about material prices offsetting ASP pressures in 2008. We see increasing revenue and gradually decreasing profitability for the company. However, being a market leader, the company should fare better than most of the other smaller players.
Consequently, we view the declining share price as an opportunity to accumulate shares. We reiterate our Buy rating.
The stock is currently trading at a 9.4x multiple of price to our fiscal year 2008 earnings estimate (P/E). Garmin has a solid product pipeline, and its new product development strategy has enabled it to protect and grow market share in both North America and Europe.
The exponential growth in PND products will continue to pull down corporate margins, and some investors may be concerned about this. We would however, point to the fact that operating profit dollars have increased 248.8% over the last three years. We believe that Garmin deserves a premium to the market, based on its size, brand name, market position and solid financials. We are reiterating our target price of $75.00 (16.7x P/E).
We analyzed the company based on the Du Pont model. The ROE of the company, at 41.2%, is on a decline. Falling net margins are the main reason for the lower ROE. Management expects margin declines to continue through 2008, which could further drive down the ROE. The positive factor remains the asset turnover, as the company remains very efficient at converting assets to revenue. The equity multiplier has also been increasing over the last three years. As a result, the ROE remains very strong.
Upping Hold-Rated Penn Va Ests
Penn Virginia Resource Partners (PVR) partners reported record net income of $34.5 MM or $0.65 per limited partner unit, an increase of nearly 117% over Q1 07 earnings of $0.30 per unit and beating our expectations of $0.37 per unit. In the company's two main operating segments -- coal and midstream gas processing -- prices, margins and production increased year-over-year due to a strengthening coal market and increased crude prices from the same period a year ago.
This led to record revenues and increased distributable cash flow, a primary measure of MLP performance, over the first quarter '07.
