Since the bottom of 2009, Trimble Navigation Limited (NASDAQ:TRMB) has advanced consistently, from around $7 per share in March 2009 to nearly $28 per share recently. Interestingly, since the beginning of the year, Trimble has declined more than 6%, lagging the S&P 500’s return of nearly 16.4%. In the first quarter of 2013, small-cap guru Chuck Royce and Ruane Cunniff kept adding Trimble Navigation to their portfolios. Is Trimble Navigation a good investment opportunity at its current price? Let’s find out.
A good quarter but negative tangible book value
Trimble Navigation Limited (NASDAQ:TRMB) is a technology solutions company providing Global Positioning System (GPS) and Global Navigation Satellite Systems (GNSS) to various industries, including architecture, agriculture, construction, and natural resources. The majority of its operating income, $207.2 million, or 47% of the total 2012 income, was generated from the Engineering & Construction segment. The Field Solutions segment ranked second with $182.13 million in operating profit, while the Mobile Solutions and the Advanced Devices segment contributed only $32.46 million and $19.17 million, respectively, in 2012 operating income.
The company has quite a conservative capital structure. As of March 2013, it had $1.95 billion in equity, $144 million in cash, and $920 million in both long and short-term debt. However, what makes me worried is its high goodwill and intangible assets of as much as $2.48 billion. Thus, the tangible book value was negative at $530 million.
In the first quarter of 2013, its operating income experienced a slight decrease from $59.85 million last year to $56.46 million this year. Net income came in at $49.8 million, or $0.19 per share, a bit lower than net income of $50.8 million, or $0.20 per share, in the first quarter last year. For the second quarter, Trimble Navigation Limited (NASDAQ:TRMB) expects to generate around $570 to $580 million in revenue and around $0.18 to $0.20 in GAAP EPS.
President and CEO, Steven Berglund said that he was “cautious about second quarter prospects,” but “anticipate improved organic growth in the second half of 2013.” At $28.10 per share, Trimble Navigation Limited (NASDAQ:TRMB) is worth around $7.2 billion on the market. The market values Trimble at 16 times its forward earnings.
Are Garmin (NASDAQ:GRMN) and Fleetmatics better buys?
Compared to peers Garmin Ltd. (NASDAQ:GRMN) and FleetMatics Group PLC (NYSE:FLTX), Trimble Navigation Limited (NASDAQ:TRMB) is the biggest company among the three. Garmin, at $35.50 per share, is worth nearly $7 billion on the market. The market values Garmin a bit cheaper at 14.9 times its forward earnings. Garmin has kept innovating with new products. Recently, the company launched a new portable navigation device for MINI vehicles. For a better and more integrated design, all cables would be hidden behind the dashboard. Garmin Ltd. (NASDAQ:GRMN)’s managing director of automotive OEM, Matt Munn, said that with new Real Directions and Active Lane Guidance features, this new Garmin device allows drivers to follow directions in a much easier way.
FleetMatics Group PLC (NYSE:FLTX) is one of the main competitors of Trimble Navigation Limited (NASDAQ:TRMB) in the Mobile Solutions segment. Fleetmatics provides fleet management solutions to around 331,000 vehicles and around 18,000 customers around the world. In the past three years, its subscription revenue has grown significantly, from $64.69 million in 2010 to nearly $127.5 million in 2012. Net income has also improved substantially, from a loss of $736,000 to a profit of more than $5.4 million.
Recently, Virgin Media Inc. (NASDAQ:VMED) chose SageQuest, one of its enterprise fleet management solutions, for 2,600 vehicles in Britain to help the company improve Virgin Media’s environmental performance, including reducing fuel usage, increasing safety levels, and enhancing customer service level. Because of its high growth, Fleetmatics has quite a high valuation. At $30 per share, Fleetmatics is worth nearly $1 billion. The market values Fleetmatics at as high as 31.7 times its forward earnings.
My Foolish take
According to Barron’s, Dougherty & Co estimated that Trimble Navigation Limited (NASDAQ:TRMB) might earn around $1.74 per share in 2014. With a P/E of 20, the stock might be worth $35 per share in around a year. Indeed, customers have been saving costs and improving productivity with the help of Trimble’s products. It is a decent business, however, with a negative book value and double-digit forward earnings valuation, I do not think Trimble offers enough margin of safety for investors at its current price. I would prefer a much lower valuation before initiating a long position.
Anh HOANG has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Anh is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
The article Is This Technology Solutions Company a Good Turnaround Play? originally appeared on Fool.com and is written by Anh HOANG.
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