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As earnings news, acquisitions, and social media drama filled the tech landscape over the past week, it was easy to miss a momentous achievement: new technology that can land a small plane without a single bit of help from a human pilot.
Autoland from
Garmin
(ticker: GRMN) takes control of an aircraft when it senses an unresponsive pilot or if a passenger engages the system. It is intended to prevent crashes like the one that killed Payne Stewart 20 years ago, when the golfer’s private jet depressurized, incapacitating everyone on board. The plane flew on a straight line autopilot for four hours before running out of fuel and crashing in South Dakota.
Garmin’s technology will be in new planes from Piper and Cirrus starting next year. If Tesla managed such a feat, it probably would have scheduled a prime-time announcement, streamed across the world. Amazon.com might have touted the product on 60 Minutes. Not Garmin. The Olathe, Kan.-based company issued a press release last Wednesday and that was about it.
Garmin is used to flying under the radar. To many, the company is still the maker of car GPS devices that were long ago supplanted by Waze and Google Maps.
But as Silicon Valley companies monopolized consumer and investor attention, Garmin never stopped innovating. It has introduced 80 to 100 products annually for each of the last six years, mostly from its aviation and outdoor and fitness segments. The automotive segment has gone from more than 80% of sales in 2007 to just 15% in the latest quarter.
The company replaced GPS sales with niche hits like the Fenix hiking watch, in its outdoor segment; the Forerunner running watch in its fitness segment; fish finders in its marine segment; and integrated flight computers in its aviation business.
Its wearable products have long played second fiddle to
Fitbit
and the
Apple
Watch. But,
Fitbit
(FIT) has struggled to make its mass-market wearable strategy work. On Friday, the company agreed to sell itself to Google, a unit of
Alphabet
(GOOGL), for $2.1 billion. That is not a trivial amount but it still amounts to a failure for Fitbit, which was valued at $10.6 billion in 2015.
Even a successful Apple Watch hasn’t done much to dent Garmin’s success. “Apple is a single device meant to please everybody,” says Charlie Anderson, an analyst with Dougherty & Co. who has covered Garmin since 2007. “Garmin is specific devices for specific people.”
The M&A news from Fitbit managed to overshadow another stellar week for Garmin, which reported its 16th consecutive quarterly earnings beat. The low expectations have led to huge gains for Garmin shares. They are up 50% year to date and closed at a 12-year high on Wednesday. Garmin now has a market value of $19 billion.
Barron’s readers saw this one coming. In July 2015, I wrote that Fitbit’s recently public stock reflected a lot of hype and said, “for those keen on playing the booming wearables market, there’s a cheap option hiding in plain sight: Garmin.” The stock has returned 152% since that story, while Fitbit is down 83%, even after its takeout-inspired rally.
“I think the key for us has been differentiation, trying to leverage those niches in our markets where other people either don’t have the insight or interest to play,” Garmin CEO Cliff Pemble told me this past week.
I spent the last few weeks trying out one of Garmin’s latest products. It’s a $3,200 internet-connected bike known as the Neo Bike Smart made by a recently acquired Garmin unit called Tacx. As a wannabe cyclist—and a user of
Peloton Interactive’s
(PTON) indoor bike—I thought it would be interesting to see how Garmin was attacking the indoor-cycling phenomenon.
Sure enough, Garmin is going its own way. I had to assemble the bike myself and choose my own iPad apps to pair with it. The setup alone took far more time than Peloton’s professional delivery. But once I got it going, it was impressive. Various iPad apps led me through real-life mountain passes in Italy, while the bike’s resistance adjusted for the terrain. There are even simulated gears. The Neo Bike captures outdoor cycling in a way a Peloton can’t and doesn’t attempt. Even so, Garmin’s complicated Neo Bike is unlikely to ever come close to the popularity of Peloton’s model.
And that’s fine with Pemble. “Cycling in general is one of the niche markets that we serve,” he says. “It’s not a huge market, but it’s a meaningful market for us, and it’s part of the incrementals that build all of Garmin.”
Those incrementals will add up to an expected $3.65 billion in sales this year, up 9% from last year. Earnings per share are likely to jump 14%, to $4.19, because Garmin’s revenue is outpacing its expense growth.
As the results add up, however, Wall Street remains unimpressed. Just eight Wall Street analysts cover the company, according to FactSet; none of them have a Buy rating on the stock.
“I think Garmin is a different kind of company,” Pemble says of Wall Street’s tepid interest. “It’s these five different market segments and a lot of moving pieces. And so sometimes analysts don’t always know which one of their experts should cover it. Should it be the aerospace person? Should it be the consumer person? In some cases, I think they give up and probably nobody does.”
Investors shouldn’t make the same mistake. Garmin looks expensive relative to its history—the stock trades at 22.5 times estimated earnings for the next 12 months versus a five-year average of 18.5—but Wall Street has also continuously underestimated the company’s earnings power.
“It has earned the right to trade at a better valuation,” Dougherty’s Anderson says of Garmin stock, “based on a performance that people didn’t think was possible.”
Write to Alex Eule at [email protected]