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Garmin Ltd. (GRMN) Poised for Strong Position in Navigation, Wearables & Avionics with $200M Expansion Plans

Garmin (NASDAQ: GRMN), which handsomely outperformed analyst estimates by nearly 30 percent with Q2 EPS of $0.87 in July (6.4 percent higher revenues than the consensus), has evolved into one of the most compelling homegrown success stories of the modern age.

Able to strike hard and fast across a slew of global markets with an impressive portfolio of GPS-enabled navigation and VHF (very high frequency) solutions, the Kansas-based device maker is known for its navigation products, is a veritable institution in the Kansas City metro area, and has also become a major player in the nearly $29 billion wearables space.

With the impressive performance of the worldwide wearables market – which in Q1 2016 achieved a year-over-year increase of 67% in terms of total shipment volumes, according to IDC – a storied pioneer such as Garmin should continue to have no problem amassing market share in activity trackers and smartwatches.

While the company easily competes in the wearables space with much larger economy of scale players such as Apple (NASDAQ: AAPL), or with laser-focused specialist designers such as Fitbit (NYSE: FIT), Garmin’s ability to simultaneously serve the automotive, aviation, health/wellness, marine, sport/recreation and action camera markets with its broad spectrum portfolio is what makes it so attractive.

One area of Garmin’s portfolio that remains largely underappreciated by investors – and one which clearly demonstrates the company’s incredible engineering and design versatility/prowess – is its exceptionally modular avionics offerings. In fact, this growing business for Garmin was one of the key areas highlighted by the recent announcement (Aug 26) regarding its master plan to significantly expand its manufacturing and distribution capacity with a $200 million upgrade of its already sizeable Olathe campus. We are talking room for nearly twice the staff, a new 720,000-square-foot manufacturing and distribution facility, and the renovation of existing facilities into a new state-of-the-art R&D lab, complete with ancillary office space.

Garmin has been killing it lately in flight control, communications and telemetry systems with a comprehensive lineup of commercial avionics packages offered in a modular fashion that lets any budget start upgrading its airframes immediately, whether its business jets and transporters, or local, state and federal government agencies.

The company even has its own government and military sales team for that specific segment of the avionics market, and the new North America facility expansion will set the company up for a more integrated approach to aircraft manufacturers, as well as a more agile approach to the aircraft owner market. The new facility and R&D digs, as well as the addition of several amenities like a first-class fitness center and cafeteria, is expected to wrap sometime in 2020.

Gartner forecasts that smartwatches alone will see over 52 percent growth through 2019 to around $17.5 billion; the LBS/RLTS space is on track to do nearly $55 billion a year by 2020, according to a MarketsandMarkets report from November of last year (CAGR over 37 percent). This rich soil is the ideal place for Garmin to germinate a bedrock presence in an area like avionics, and with the seemingly unstoppable proliferation of 3G/4G, PDA-based ecommerce/mcommerce, local search and the O2O (online-to-offline) market, Garmin is one to keep an eye on moving forward.

Zacks projects mean EPS of $0.58 for FY17, in line with Garmin’s own internal projections for the coming quarter. The company is looking for FY16 EPS of around $2.50 and is clearly doubling down on its core strengths/brand recognition with this facility expansion.

For more information, visit www.garmin.com

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