Garmin Breaks Out to Multi-Year Highs After Earnings

Core Business Growth Offsets Weakness in Autos

Garmin Ltd. (GRMN) shares soared more than 15% on Wednesday morning after the company reported better-than-expected fourth quarter financial results and guidance. Revenue rose 3.9% to $932 million, beating consensus estimates by $40.72 million, and non-GAAP earnings per share (EPS) came in at $1.02, beating consensus estimates by 22 cents per share. Gross margins and operating margins also came in well above consensus.

The strongest growth came from sales in outdoor (up 25%), aviation (up 22%) and marine (up 13%), whereas auto sales fell 28% and fitness sales were flat. While Garmin's fitness products have seen significant competition from Fitbit, Inc. (FIT) and others, the company's core business in outdoor, aviation and marine has proven to be very robust.

For the full year, Garmin projected revenue of $3.5 billion, versus a $2.43 billion consensus, and EPS of $3.70, versus a $3.52 consensus. The company also increased its quarterly dividend by 7.5% to $0.57 per share, which translates to a 3.21% forward yield. These estimates are much more bullish than many analysts were expecting to see from the traditionally conservative company.

Technical chart depicting the share price performance of Garmin Ltd. (GRMN)

From a technical standpoint, Garmin stock broke out from R1 resistance at $72.09 to fresh multi-year highs. The relative strength index (RSI) moved into overbought territory with a reading of 88.42, but the moving average convergence divergence (MACD) experienced a strong bullish rebound. These indicators suggest that the stock could see some near-term consolidation before resuming its strong trend higher.

Traders should watch for some near-term consolidation above R2 resistance at about $75.00. If the stock moves below these levels, there is strong support at R1 resistance at $72.09 and trendline support at $70.00. The next major areas of resistance are Fibonacci extensions at $84.00, $88.00 and $91.00, which are 100%, 128.2% and 161.8% Fibonacci extensions, respectively.

The author holds no position in the stock(s) mentioned except through passively managed index funds.

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