Garmin Ltd.'s (NYSE:GRMN) Intrinsic Value Is Potentially 24% Below Its Share Price

In This Article:

Key Insights

  • Using the 2 Stage Free Cash Flow to Equity, Garmin fair value estimate is US$159

  • Garmin is estimated to be 31% overvalued based on current share price of US$208

  • The US$182 analyst price target for GRMN is 14% more than our estimate of fair value

Today we'll do a simple run through of a valuation method used to estimate the attractiveness of Garmin Ltd. (NYSE:GRMN) as an investment opportunity by estimating the company's future cash flows and discounting them to their present value. Our analysis will employ the Discounted Cash Flow (DCF) model. Before you think you won't be able to understand it, just read on! It's actually much less complex than you'd imagine.

We generally believe that a company's value is the present value of all of the cash it will generate in the future. However, a DCF is just one valuation metric among many, and it is not without flaws. If you still have some burning questions about this type of valuation, take a look at the Simply Wall St analysis model.

Check out our latest analysis for Garmin

Is Garmin Fairly Valued?

We are going to use a two-stage DCF model, which, as the name states, takes into account two stages of growth. The first stage is generally a higher growth period which levels off heading towards the terminal value, captured in the second 'steady growth' period. To start off with, we need to estimate the next ten years of cash flows. Where possible we use analyst estimates, but when these aren't available we extrapolate the previous free cash flow (FCF) from the last estimate or reported value. We assume companies with shrinking free cash flow will slow their rate of shrinkage, and that companies with growing free cash flow will see their growth rate slow, over this period. We do this to reflect that growth tends to slow more in the early years than it does in later years.

Generally we assume that a dollar today is more valuable than a dollar in the future, and so the sum of these future cash flows is then discounted to today's value:

10-year free cash flow (FCF) forecast

2025

2026

2027

2028

2029

2030

2031

2032

2033

2034

Levered FCF ($, Millions)

US$1.26b

US$1.44b

US$1.54b

US$1.63b

US$1.71b

US$1.79b

US$1.85b

US$1.92b

US$1.98b

US$2.04b

Growth Rate Estimate Source

Analyst x3

Analyst x2

Est @ 7.28%

Est @ 5.88%

Est @ 4.90%

Est @ 4.22%

Est @ 3.74%

Est @ 3.40%

Est @ 3.17%

Est @ 3.00%

Present Value ($, Millions) Discounted @ 7.8%

US$1.2k

US$1.2k

US$1.2k

US$1.2k

US$1.2k

US$1.1k

US$1.1k

US$1.1k

US$1.0k

US$964

("Est" = FCF growth rate estimated by Simply Wall St)
Present Value of 10-year Cash Flow (PVCF) = US$11b

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