Even when the COVID-19 pandemic is behind us, there are virtually definitely going to be everlasting life-style adjustments from it. Individuals have been escaping social-distancing measures by heading outside and using bikes, working, or strolling, and health lovers have introduced train routines into the house. Well being and security concerns are on the forefront of vacationers’ minds too.
Traders seeking to money in on these traits ought to take a look at Garmin (NASDAQ:GRMN), which affords units to individuals on the transfer, particularly outside lovers. A take a look at the corporate, and its 4 rising enterprise segments, reveals an already robust operation that could be in a candy spot after the pandemic.
Transition to health and outside
Many traders could not have followed Garmin over the past decade because it transitioned from primarily a provider of automotive private navigation units to a considerably extra numerous product line for individuals with lively existence, together with boaters and pilots. The gross sales combine figures under illustrate the notable shift.
|Section (as % of income)||Fiscal 2019||Fiscal 2013||Fiscal 2007|
The transition within the enterprise has been pushed by robust development in Garmin’s non-automotive segments. Just lately introduced first-quarter outcomes for fiscal 2020 confirmed continued momentum as auto turns into a smaller and smaller sliver of the corporate’s high line.
|Section||Q1 Fiscal 2020 Development (YOY)||Fiscal 2017 to 2019 CAGR|
Within the first quarter of 2020, the health and marine companies each grew greater than 20%, with the previous benefiting from the early 2019 acquisition of indoor biking firm Tacx, whereas the latter noticed continued energy from new merchandise like chartplotters and superior sonars.
Tapping into traits
First-quarter outcomes weren’t overly affected by the continuing pandemic, however administration withdrew its fiscal 2020 steerage. Garmin believes it can stay worthwhile within the second quarter, although it expects a pointy decline in gross sales. In the course of the earnings call, CEO Clifton Pemble famous, “On a consolidated foundation, our April gross sales are trending about 40% decrease than final yr, as many retailers have curtailed operations and shopper exercise has been severely restricted by authorities restrictions. We anticipate these traits to proceed all through the second quarter as restrictions stay in place throughout a lot of the globe.”
Trying past the present disaster, the recognition of the corporate’s merchandise could even develop. A deal with well being and wellness ought to have extra individuals taking a look at its health and outside choices. The liberty provided by leisure boating and flying could turn into much more in style for these with means as effectively.
The development for indoor biking has helped make Garmin’s Tacx acquisition a hit. A number of the $140 million deliberate for capital expenditures this yr goes to a brand new manufacturing facility that can open mid-year. Administration mentioned within the earnings convention name that it has “not been in a position to provide all of the demand there.”
One other issue that can stand out after the pandemic’s financial fallout is monetary energy. Garmin has a rock-solid steadiness sheet with zero debt and $2.6 billion in money and marketable securities. Free money move in first quarter was $185 million, whereas it spent $109 million on dividends.
With that form of money place, traders can anticipate each continued investments within the enterprise and potential will increase to the payout, which yields 3.0% as of this writing. CFO Douglas Boessen commented, “Returning [an] engaging dividend to our shareholders is certainly one of our present priorities for money.”
The corporate even continues to spend money on the slowing automotive section and expects a lift in that space later within the yr after turning into a Tier 1 provider (supplying elements on to main automobile producers) and spending capital on a brand new European facility.
Whereas traders can anticipate an atypical decline in year-over-year gross sales for the upcoming quarter — and probably additional into fiscal 2020 — Garmin has redefined its enterprise with a observe document of robust development. Submit-pandemic traits could play even additional into these areas, making double-digit gross sales development the norm as soon as economies get well. Till then, traders can really feel assured with Garmin’s cash-rich steadiness sheet and wholesome dividend.
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