Goldman Sachs Downgrades Garmin To Sell, Concerned With Decelerating Growth In Fitness

Following the recent run-up in shares of Garmin Ltd. (NASDAQ: GRMN), Goldman Sachs’ Simona Jankowski downgraded the rating on the company from Neutral to Sell, while maintained the price target at $46. The analyst noted that the price target now reflected 14 percent downside, versus the 1 percent median downside for their coverage.

Garmin’s shares have gained 44 percent year-to-date, and are trading 30 percent higher than their its 5-year median. With growth in the key Fitness/Outdoor segment expected to decelerate from 29 percent in 2Q16 to 7 percent in 2Q17, Garmin’s shares would likely underperform going ahead, analyst Jankowski mentioned.

Jankowski further noted that the stock had a 71 percent correlation to y/y growth in the Fitness/Outdoor segment, which accounts for 45 percent of revenues and 54 percent of profits.

Related Link: Longbow Research Initiates Coverage On Garmin At Neutral

Negative Catalysts

The analyst enumerated 3 key catalysts over the next few months:

1. Likely high-profile product launches from competitors in September, including Fitbit Inc (NYSE: FIT) launching Flex 2 and Charge 2 activity trackers and Apple Inc. (NASDAQ: AAPL) launching Watch refresh.
2. Although fitness products generated high sales in the past two holiday seasons, there is likely to be increased competition this holiday season from emerging consumer electronics categories, such as VR headsets, home assistants and drones. These new categories are estimated to drive $1 billion in incremental sales in the US alone in 2016, equivalent to 25 percent of the Fitness category.
3. “Garmin will face the step-up in direct and share-of-wallet competition during a period of increasingly difficult comps, as it laps its own strong product cycle driven by commercializing its Elevate wrist-based heart monitor technology over the last three quarters (4Q15-2Q16),” Jankowski wrote.

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