Positioned to Take Off

03/10/2008 12:00 am EST

Focus:

Nikhil Hutheesing, editor of Forbes Wireless Stock Watch, says GPS firm Garmin has good products and earnings ahead and the stock is attractively priced.

Garmin (Nasdaq: GRMN) has been executing on all fronts and its revenues and earnings have been growing rapidly. While competition is picking up, the outlook for Garmin is good—yet the stock is down more than 50% from where it was just a few months ago.

Garmin is the dominant player in global positioning satellite (GPS) technology products, with a 45% market share in the US But Garmin aims to be a lot more than just a GPS company. Nearly every cell phone now has the capability of acting as a GPS navigation system as well. Even Apple's new iPhone is now offering handset mapping using WiFi hotspots and Google Maps.

Other companies like California's Magellan and Dutch-based TomTom are now going head to head with Garmin in the US To compete, Garmin has been on an acquisition spree going after new markets—mostly in Europe and Asia.

Garmin has also been coming up with new personal navigation devices to compete with Nokia and Research In Motion in smart phones—which could be a big business in the future.

In the third quarter of this year, Garmin plans to launch a new smart mobile phone called the Nüvifone which puts navigational technology at the heart of the device. The Nüvifone has drawn comparisons with Apple's iPhone for its design, simplicity and touch-screen display.

On February 20th, Garmin reported the best quarter and year in its history. For the year, total revenue was $3.18 billion, up 79%, and the company posted earnings of $855 million compared to $514 million in 2006.

While the company will continue to face increasing competition—which will put pressure on the average selling price of its products as well as margins— Garmin has said that it expects 2008 overall revenue will exceed $4.5 billion and earnings will exceed $4.40 per share.

Much of that growth will come from its increasing presence abroad, as well as its move into new products, like smart phones. The company also said that it has authorized a stock buyback program.

Currently, shares of GRMN trade at around $55—giving it a market capitalization of $12 billion. The stock trades at about 12x next year's earnings estimate and has attractive price/earnings- to-growth ratio (PEG) of 0.69x. With $745 million in cash, no debt and great growth prospects—I think shares of GRMN look very attractive.

Garmin has a solid track record and is a key player in the growing market for personal navigation devices. I believe that as the company's visibility improves around Garmin's earnings power into 2008 the multiple should move higher—to about 20x earnings. New carrier announcements for the Nüvifone will also help win over investors, pushing up the stock. At 20x expected 2008 earnings per share of $4.40, you get a price target of $88 per share—up 50%.

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