DCF Studio

    GRMN · NYQ · Technology

    Garmin Ltd.

    Also onShortfallConsensus DriftCrosscheck

    Implied value per share

    USD 157.02

    Market price

    USD 274.06

    Implied upside

    -42.7%

    5-year forecast · Perpetuity growth terminal value · Mid-year discounting · Base case

    AdjustedCapital expenditure runs at 3.9% of revenue against depreciation of 3.1%. A perpetuity has to be a steady state, so the terminal year uses maintenance capex at depreciation and then charges the reinvestment terminal growth requires (g/ROIC of NOPAT). The bridge is shown under Terminal Value.

    Current EV/EBITDA of 24.4x sits outside a defensible 3-20x band, so the exit multiple is capped at 20.0x. A multiple that far out usually means EBITDA is the wrong denominator for this business.

    Value Per Share

    Perpetuity growth
    USD 157.02-42.7%
    Exit multiple
    USD 298.41+8.9%
    Market price
    USD 274.06

    Same forecast, different terminal treatment. Percentages vs price.

    Forecast Cashflows

    Reporting currency (USD). Outflows negative.

    0bn1bn2bnFY26FY27FY28FY29FY30
    Nominal FCFFDiscounted to todayUSD
    LineFY26FY27FY28FY29FY30CAGR
    RevenueUSD 8.3bnUSD 9.5bnUSD 10.8bnUSD 12.3bnUSD 14.1bn+14.2%
    EBITUSD 1.9bnUSD 2.2bnUSD 2.5bnUSD 2.9bnUSD 3.3bn+14.2%
    NOPATUSD 1.6bnUSD 1.8bnUSD 2.1bnUSD 2.4bnUSD 2.7bn+14.2%
    Add depreciation & amortisationUSD 253.0mUSD 289.0mUSD 330.2mUSD 377.2mUSD 430.9m+14.2%
    Less capital expenditureUSD -321.4mUSD -367.2mUSD -419.5mUSD -479.2mUSD -547.4m+14.2%
    Less increase in working capitalUSD -221.7mUSD -253.3mUSD -289.3mUSD -330.5mUSD -377.6m+14.2%
    Free cashflow to firmUSD 1.3bnUSD 1.5bnUSD 1.7bnUSD 2.0bnUSD 2.2bn+14.2%
    Discount factor0.95350.86690.78810.71660.6515-
    Present valueUSD 1.3bnUSD 1.3bnUSD 1.4bnUSD 1.4bnUSD 1.5bn+3.9%
    Present Value Of The ForecastUSD 6.8bn

    Discount Rate

    Source shown per component. All overridable above.

    Risk-free rate5.00%US 10-year Treasury (^TNX)
    Equity risk premium5.50%Market assumption
    Beta0.910Reported 0.866, pulled toward 1.0 (Blume)
    Cost of equity10.00%Risk-free + beta x equity risk premium
    Cost of debt7.00%Assumed: risk-free + 2bp (interest expense not reported)
    Market capitalisationUSD 52.9bn99.7% of capital
    Total debtUSD 164.8m0.3% of capital, book value as a proxy
    Tax rate16.7%Effective, capped at statutory
    WACC9.99%E/V x Re + D/V x Rd x (1 - t)

    Terminal Value

    Perpetuity growth is intrinsic. The exit multiple defaults to the company's current EV/EBITDA, so it answers a different question - what the shares are worth if today's rating holds and EBITDA grows as forecast.

    Perpetuity growth at 2.50%

    Value per shareUSD 157.02

    76% of EV

    Forecast FCFF, final year
    USD 2.2bn
    Capex at depreciation, working capital in reinvestment
    USD 2.8bn
    Less reinvestment at g/ROIC (16.3% of NOPAT)
    USD -459.4m
    Capitalised
    USD 2.4bn
    ROIC (reported)
    15.3%
    Terminal value, undiscounted
    USD 32.3bn
    Terminal value, discounted
    USD 21.1bn
    Enterprise value
    USD 27.8bn
    Less net debt
    USD -2.6bn
    Equity value
    USD 30.4bn

    Exit at 20.0x EBITDA

    Value per shareUSD 298.41

    88% of EV

    Terminal value, undiscounted
    USD 74.3bn
    Terminal value, discounted
    USD 48.4bn
    Enterprise value
    USD 55.2bn
    Less net debt
    USD -2.6bn
    Equity value
    USD 57.8bn

    Spread between methods: 62%.

    Sensitivity

    Value per share (USD) by discount rate and long-run growth.

    Long-run growth
    Discount rate1.50%2.00%2.50%3.00%3.50%
    7.99%195.45202.65211.09221.16233.40
    8.99%170.04174.63179.87185.93193.04
    9.99%150.67153.67157.02160.81165.13
    10.99%135.43137.41139.58142.00144.69
    11.99%123.12124.43125.85127.39129.08

    Outlined: this model. Green text: above today's price of 274.06. Shading: distance from this model's own value.

    Priced In

    What each input would have to be to justify the current price, one at a time.

    InputModelImpliedGap
    Revenue growth, every year14.2%30.9%+16.7pp
    EBIT margin23.3%41.7%+18.4pp
    Discount rate10.0%6.7%-3.3pp
    Download as Excel

    Live formulas, not pasted numbers - edit a driver and the workbook reprices.

    Yahoo Finance and RBA data. General information, not advice. Methodology.