By William Patalon III
Executive Editor
Money Morning/The Money Map Report
Shares of GPS-device-maker Garmin Ltd. (GRMN) plunged as much as $12.70 yesterday (Wednesday) - extending a longer-term decline - after a Deutsche Bank AG (DB) analyst downgraded the shares, and warned that spiraling competition from rival TomTom NV may lead to a profit-crimping price war.
Analyst Jonathan Goldberg downgraded the stock to "Hold" from "Buy," while also slashing his target price from $125 to $90 per share. Based on conversations with Garmin and TomTom representatives at the current International Consumer Electronics Show, Goldberg said Garmin's future is much less clear than it has been in recent years.
"TomTom management came across as being more aggressive about their plans in the U.S. this year, causing us to question the pricing discipline displayed so far," Goldberg told CNNMoney.com.
Garmin shares rallied late in the day to close at $75.99, down only $4.21 each, or 5.25% per share.
Although Garmin should continue to post solid results over the next several quarters, Goldberg said the company is reporting slower growth in some key European markets, such as Germany. And given the current atmosphere of uncertainty in the stock markets in general, there's no way investors can justify paying the high multiple that sent the shares to such lofty levels last year, he said.
The bottom line: The stock deserves to remain at its current level for the moment, he said.
Back in early October, cell-phone giant Nokia Corp. (NOK) stunned the market - and Garmin investors - by announcing plans to buy the Chicago-based Navteq Corp. (NVT), a leading digital mapmaker, for about $8.1 billion. Navteq is the key supplier of the digital maps Garmin's technology hides behind.
Faced with the potential loss of a key supplier, Garmin launched a hostile takeover bid for digital mapmaker Tele Atlas NV (TLATF), which TomTom already was working to buy. Finally, in November, TomTom trumped Garmin in a bidding battle for Tele Atlas - offering $4.2 billion, versus a $3.31 billion bid from Garmin. Tele Atlas was the last independent computerized-cartography company.
Garmin dropped its Tele Atlas bid and inked a long-term supplier contract with Navteq, but some analysts believe this leaves Garmin as a more-weakly positioned company. That thwarted takeover deal, coupled with market-share worries, has sent Garmin's shares lower.
Garmin shares have traded between $48.46 and $125.68 in the last 12 months.
News and Related Story Links:
- CNNMoney.com:
Garmin Slips on Downgrade; Analyst Expects More U.S. Competition and Possible Price Cuts
- Bloomberg News:
Garmin Withdraws Tele Atlas Bid, Ceding to TomTom
- Money Morning News Analysis:
GPS Leader Garmin Weighs Counterstrike in Crucial Battle For Digital Mapmaker Tele Atlas; Settles Patent Dispute With Rival TomTom.
- Money Morning News Analysis:
TomTom Bangs Out Higher Bid For Mapmaker Tele Atlas.
- Seattle Post-Intelligencer.com:
Garmin, TomTom Settle Patent Disputes.
- International Business Times:
Garmin Vs. TomTom: A Timeline of Litigation Over Tele Atlas
- Money Morning News Analysis:
Garmin Takes 5% Stake in Tele Atlas, Company it is Pursuing in Hostile Bidding Battle
- Money Morning News:
Garmin Beats Earnings Estimates, Launches $3.31 Billion Hostile Bid for Tele Atlas; Shares Plunge
- BusinessWeek:
Tele Atlas Endorses $4.2B TomTom Bid.
About the Author
Before he moved into the investment-research business in 2005, William (Bill) Patalon III spent 22 years as an award-winning financial reporter, columnist, and editor. Today he is the Executive Editor and Senior Research Analyst for Money Morning at Money Map Press.