Wearables And AI Will Empower Premium Health Markets

Key Takeaways

• Strong growth in subscription and software revenues, supported by new user adoption and recent acquisitions, is set to expand margins and drive sustainable earnings growth.
  
• Advanced wearables, AI-driven health features, and global expansion into premium verticals will deepen ecosystem engagement, boost pricing power, and diversify revenue streams.
  
• Increasing smartphone capabilities, competition, and regulation threaten demand, margins, and profitability for Garmin's specialized devices, while product concentration raises risk and earnings volatility.

Catalysts

Designs, develops, manufactures, markets, and distributes a range of wireless devices worldwide.

• Analyst consensus expects Garmin's subscription revenue to improve margins, but a significantly larger portion of Garmin's customer base remains untapped for premium offerings; strong early adoption of Garmin Coach and Connect Plus suggests subscription revenue and blended margins could scale much faster than consensus, driving sustainable double-digit EPS growth over multiple years.
  
• Analysts broadly recognize new product launches as a revenue driver, but are underestimating the stickiness and growth from new user segments entering the ecosystem-management highlighted that recent advances in wearables are propelling conversion of first-time buyers globally, paving the way for outsized long-term revenue compounding as new users upgrade and cross-purchase within Garmin's connected device ecosystem.
  
• The acquisition of MYLAPS unlocks a uniquely high-margin, recurring software and services stream by integrating official event timing into Garmin's athletic platform, positioning the company to become the de facto partner for major athletic events; this creates a new, defensible profit pool and drives high incremental contribution to both top-line and operating margin.
  
• Garmin's deepening integration of AI-driven health analytics and proprietary sensor technology, combined with increasing health awareness globally, positions the company to lead in preventative health and personalized fitness-fueling durable revenue growth and premium pricing power well above industry averages.
  
• Ongoing global expansion and strategic investments in premium, niche verticals like aviation and marine are likely to deliver sustained high-margin growth, further diversifying revenue sources, reducing cyclicality, and positioning Garmin for accelerated earnings expansion as digital transformation accelerates adoption of advanced connected devices.

Garmin Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more optimistic perspective on Garmin compared to the consensus, based on a Fair Value that aligns with the bullish cohort of analysts.
• The bullish analysts are assuming Garmin's revenue will grow by 8.2% annually over the next 3 years.
• The bullish analysts assume that profit margins will shrink from 23.2% today to 21.9% in 3 years time.
• The bullish analysts expect earnings to reach $1.9 billion (and earnings per share of $9.82) by about August 2028, up from $1.6 billion today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bullish analyst cohort, the company would need to trade at a PE ratio of 36.6x on those 2028 earnings, up from 28.0x today. This future PE is greater than the current PE for the US Consumer Durables industry at 10.0x.
• Analysts expect the number of shares outstanding to grow by 0.15% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.63%, as per the Simply Wall St company report.

Garmin Future Earnings Per Share Growth

Risks

• The proliferation of smartphone capabilities continues to threaten Garmin's core business, as the integration of health, fitness, navigation, and outdoor features into smartphones may reduce demand for dedicated devices, posing a risk to future revenue and earnings growth.
  
• Intensifying competition from well-capitalized tech giants like Apple, Google, and Samsung in the wearables and fitness segment may erode Garmin's market share and force price reductions, leading to pressure on both revenue and net margins.
  
• Garmin's heavy reliance on a limited number of product categories, such as wearables and navigation devices, exposes it to category-specific shocks that can create volatility in its revenue and earnings, especially if demand in these segments softens.
  
• The commoditization of consumer electronics and shortening product lifecycles may lead to downward pricing pressure on wearables and navigation devices while also requiring persistent investment in R&D, thereby threatening profitability and eroding margins over time.
  
• Rising regulatory and consumer focus on data privacy, environmental sustainability, and evolving trade barriers could increase compliance and operational costs, limit Garmin's ability to collect and leverage user data, disrupt supply chains, and compress both top-line growth and net earnings.

Valuation

• The assumed bullish price target for Garmin is $285.0, which is the highest price target estimate amongst analysts. This valuation is based on what can be assumed as the expectations of Garmin's future earnings growth, profit margins and other risk factors from analysts on the bullish end of the spectrum.
  
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $285.0, and the most bearish reporting a price target of just $167.0.
  
• In order for you to agree with the bullish analysts, you'd need to believe that by 2028, revenues will be $8.6 billion, earnings will come to $1.9 billion, and it would be trading on a PE ratio of 36.6x, assuming you use a discount rate of 7.6%.
  
• Given the current share price of $228.25, the bullish analyst price target of $285.0 is 19.9% higher.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.