Will Garmin Hike Its Outlook This Week?

Garmin (NASDAQ: GRMN) shareholders could be navigating toward stock price gains in the next week. The GPS tech giant will announce its fiscal second-quarter results before the market opens on Wednesday, July 28. And if recent history is any guide, that report should contain some impressive sales and profit metrics, along with a modest upgrade to the company's growth outlook.

Let's take a closer look.

A woman wearing a smartwatch while preparing to go biking.

Image source: Getty Images.

The benefits of a big portfolio

Garmin has avoided volatile sales results over the past few years, mainly due to its wide portfolio, which includes both consumer tech like smartwatches and bigger-ticket items like boat and airplane navigation systems. That diversity helped the company post industry-thumping year-over-year sales gains of 25% in the fiscal first quarter even though a few niches struggled.

Look for even stronger growth this quarter despite some booming results a year ago.

Most investors who follow the stock are predicting sales will jump 28%, as the pandemic threat waned in Q2. As usual, Garmin had a busy quarter for product releases in niches like fitness trackers, hiking watches, and marine navigation.

That flood of innovation likely met a receptive public that was eager to spend money on tech as people increased their outdoor time. Garmin is positioned to capture more than its fair share of that market expansion.

Higher margins

Management has been signaling a weak earnings outing in 2021 due to the need for more spending in areas like research and development and the manufacturing and supply chains. Profits won't grow by much in 2021 after jumping 16% last year.

Garmin might change its tune this week, though, especially if demand has kept shifting toward higher-margin products in its lineup. A rebound in the aviation niche would also lift gross profit margin and brighten the earnings outlook.

GRMN Operating Margin (TTM) Chart

GRMN Operating Margin (TTM) data by YCharts

In today's booming economy, it's relatively easy to increase sales. But Garmin should stand out from peers with faster growth and restrained marketing and promotions spending. That success would all show up in an operating margin that continues to climb toward 30% of sales.

A new outlook?

The biggest disappointment from last quarter's announcement was that management left its outlook unchanged. It pointed to uncertainty around the path of COVID-19 statistics and the fact that so much of the fiscal year lies ahead.

There should be much more clarity this time around, which means investors might get a big upgrade to the growth forecast. Heading into the report, sales are predicted to rise to $4.6 billion from $4.2 billion, and earnings are forecast to land at around $5.15 per share.

If Garmin avoided major supply chain challenges in Q2, then the company likely will have some positive things to say about its outlook for the second half of the year. The new forecast from CEO Cliff Pemble and his team should reflect a sixth straight year of rising sales for the GPS giant. It might even translate into a quick return to rising profitability following last year's drop.

But even if Garmin simply affirms its outlook again, investors might want to keep the stock on their watch lists. With a rising dividend, strong growth, and a long track record of boosting earnings, the company should deliver strong returns from here.

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Demitri Kalogeropoulos has no position in any of the stocks mentioned. The Motley Fool recommends Garmin. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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