Garmin: Stock under Pressure after Downgrade by Morgan Stanley

Garmin's stock came under pre-market pressure, losing 5% after Morgan Stanley downgraded the stock from 'equal-weight' to 'underweight'. Morgan Stanley analysts expressed growing concerns about the company's future growth trajectory and profitability. In particular, they anticipate a significant slowdown in key business areas by 2025. In this context, Morgan Stanley lowered Garmin's price target from $155 to $139, indicating potential downside risks. While the stock benefited from strong revenue growth in 2024, it may face challenges in the future. The analysts highlight various challenges: a marked slowdown in revenue growth, difficult year-over-year comparisons, the timing of new product launches, and market-related challenges in the fitness, outdoor, and marine sectors. In the fitness segment, which benefited in 2024 from successful product launches, analysts expect only modest growth in 2025. Higher prices for flagship products like the Fenix 8 could dampen demand in the outdoor segment as well. The marine and automotive OEM segments may also encounter difficulties, particularly due to a downturn in the broader boat market and slowing growth from acquisitions in 2023. In addition to revenue concerns, potential margin compression was also noted. Gross margins could fall to their lowest level in eight years by 2025, which, in turn, could pressure the stock price. The analysis suggests that Garmin's current valuation is not sustainable given the expected slowdown. Morgan Stanley forecasts that Garmin may face a reevaluation as investors adjust to the changed growth scenario. Historically, Garmin's stock has experienced declines during growth slowdowns, potentially resulting in a market correction. Morgan Stanley analysts emphasize that while Garmin remains a high-quality company with a strong management team and diversified revenue base, the next 12 months could be fraught with risk.