Tuesday, December 12, 2006

Calls of Note Part 5

- Merrill Lynch continues to be positive on Garmin (NASDAQ:GRMN) saying concerns on Mitac share gains are overdone.

ML continues to expect a strong holiday season for both Garmin and TomTom. While Mitac gained heavy share volume on Black Friday (est. 30,000 units vs. 20,000 units for Garmin and TomTom), theyview this share gain as a one time phenomenon. Given unsustainable price discounting, they believe market share has reverted to Garmin and TomTom.

Firm gathers the impression that retailers may have underestimated demand for PNDs and have requested additional shipments from Garmin and TomTom. PNDs remains a later holiday season product and we expect strong sales through end of December. Firm's checks have shown the n-vi sold out at some retailers. N-vi accounts for 40% of Garmin's PND units and c-series accounts for 30%.

Reiterates Buy thesis for Garmin. Garmin is the leading player in a robust growth market for PNDs. Firm notes they agree with the rest of the Street and investors that margins will decline; however, they differ on the pace of margin deterioration. In avionics, Garmin is the low-cost disruptor and will be a significant player (threat) to incumbent players. On a discounted cash flow basis, they estimate a fair value per share of $60 which implies 21X 2008E EPS of $2.85.

Notablecalls: Note that Soleil was out on GMRN yesterday upgrading their rating to Buy after spending couple of days with the management. They came away convinced business in humming nicely. Looks like they are right.

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