Earnings Launch Trimble Navigation's Shares Into a Higher Orbit

08/12/2020 9:12 am EST


Joe Duarte

Editor, Joe Duarte In the Money Options

Joe Duarte highlights how Trimble Navigation exploited the Covid-19 altered market environment.

Shares of industrial satellite systems company Trimble Navigation (TRMB), blew away expectations for its most recent quarter (see chart below). But what caught my eye was what was under the hood of the surprise from this little known high technology and consulting company.


Even better, despite the challenging environment and barring something truly catastrophic, the future looks solid as the company has an order backlog of $1.2 billion expected to be recognized in the next 12 months. Certainly, all was not rosy, as growth was affected in key segments especially in transportation, which was crushed in the early spring by the Coronavirus pandemic.

But here is why the stock took off on the results. While some companies failed to execute, TRMB adapted to the new environment rapidly via video conferencing for daily operations, trade shows as well as customer engagement. It reported expanding margins, aggressive debt reduction, high cash levels and ample liquidity for acquisitions instead of stock buybacks.

Moreover, even as its recurring business segment led the way on the revenue and earnings side, TRMB is aggressively switching to a subscription model, which will increase its operating income and cash flow on a quarterly basis. In other words, while the quarter was below last year — no surprise due to Covid-19 — the company did all the right things and delivered above the reduced expectations by rapidly adapting to a changing environment.

The stock has excellent support at $45, which can be used to enter or add to positions. Meanwhile, On Balance Volume (OBV) and Accumulation Distribution (ADI) look set to resume their upward trend as investors recognize that TRMB looks set to expand its profit orbit.

I own shares in DHI and TRMB.

Joe Duarte is a former money manager, an active trader and a widely recognized independent stock market analyst since 1987. He is author of eight investment books, including the best-selling Trading Options for Dummies. For a FREE trial to Joe Duarte in the Money Options.com, click here. I pointed out in my second half forecast where I discuss sectors and stocks with the best potential for the next few months.

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