Garmin Q2 Earnings Preview Affirms Demand Strength, But Inventory Overhang Keeps Rating at WAIT

What happened

Garmin approaches its Q2 earnings report with expectations for revenue growth driven by fitness wearables and aviation products, which offsets ongoing weakness in Auto OEM. This demand momentum aligns with the strong Q1 performance highlighted in our master report, but does not address the core concern of elevated inventories and personnel-driven opex growth. With inventories at $1.85 billion and purchase obligations at $1.12 billion, the key question is whether these figures start to decline sequentially, signaling a controlled unwind. If management reaffirms guidance and inventory metrics improve, the stock could rally, but a failure to show progress would reinforce the bear case. Until evidence of working-capital normalization emerges, we maintain our WAIT rating, with an attractive entry near $210.

Implication

The Zacks preview reinforces the consensus that Garmin's premium wearable and aviation segments continue to deliver, but it overlooks the swelling balance sheet risks we flagged. Investors should treat the earnings report as a checkpoint: a sequential decline in inventories and purchase obligations, coupled with gross margin holding near 58.5%, would strengthen the bull case. However, if promo activity intensifies and opex growth remains unchecked, the stock could drift toward our bear-case value of $190. The WAIT rating stands; we'd need a pullback to $210 before seeing a favorable risk-reward.

Thesis delta

No change to the WAIT rating. The earnings preview confirms demand durability but does not mitigate the working-capital risks central to our cautious stance. Conviction remains at 3.0, awaiting hard data on inventory normalization.