Garmin Ltd. (NYSE:GRMN) shares fell more than 2% pre-market today after Barclays analysts downgraded the company to Underweight from Equalweight, lowering the price target to $133 from $181.
The downgrade is based on concerns that Garmin’s current valuation is overly extended. Long pointed out several factors contributing to the downgrade: first, Garmin’s premium valuation compared to its historical averages; second, limited visibility into 2025 as consumer spending on hardware remains subdued, with potential spending pull-forwards in the first half of the year likely impacting future growth; and third, a negative shift in revenue mix. The analysts anticipate lower gross margins due to a smaller contribution from Garmin’s high-margin Aviation segment in the second half of 2024, coupled with a higher proportion of lower-margin Automotive OEM revenue.
The analysts set a 22x price-to-earnings (P/E) ratio on Garmin’s 2024 estimated earnings per share of $6.05, aligning with the company’s five-year historical average, resulting in the $133 price target. This implies a potential 27% downside from the current share price, with the lower-margin Automotive segment expected to pressure Garmin’s valuation.
While maintaining this cautious outlook on Garmin, the analysts expressed optimism about Logitech (LOGI) in the consumer space, citing its conservative guidance and favorable growth potential from upcoming refresh cycles.