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Fitbit (FIT) Concerns 'Well Known'; Pacific Crest Initiates Coverage with Overweight Rating

September 14, 2015 4:17 PM EDT
Get Alerts FIT Hot Sheet
Price: $6.93 --0%

Rating Summary:
    5 Buy, 18 Hold, 3 Sell

Rating Trend: = Flat

Today's Overall Ratings:
    Up: 13 | Down: 11 | New: 11
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(Updated - September 15, 2015 7:10 AM EDT)

Pacific Crest initiated coverage on Fitbit (NYSE: FIT) with an Overweight rating and a price target of $47. Analyst Brad Erickson said competitive concerns related to Apple (Nasdaq: AAPL) are well known and could prove to be overdone. He also thinks valuation is reasonable.

"While Apple is a risk to FIT, it is also one of the few risks in the near to medium term, in our view. The business is growing ridiculously fast, margin expectations are depressed, and we like Fitbit's opportunities beyond consumer in corporate wellness channels," said Erickson.

"The primary risk we must acknowledge is if Apple were to enter the fitness monitoring space directly. Apple's current presence in fitness watches doesn't represent a risk to Fitbit, in our view, and in the absence of a product launch from Apple, we think Fitbit's growth can exceed expectations, with competitive concerns likely proving overdone at current levels," continued the analyst.

Erickson added, "We forecast a 54% three-year revenue CAGR, but without margin expansion this year due to high marketing spending. We think there's likely upside to numbers and would note a lack of precision to our and consensus estimates given that Fitbit's guidance assumes no new product introductions, which we believe are likely."

Commenting on the stock's valuation, Erickson said, "FIT trades at 24x our 2017 EPS estimate, which, at a 0.7x PEG, appears reasonable. We see opportunities for multiple expansion and/or numbers to move higher driven by: (1) margin expectations being conservative; (2) upside to numbers, which could dispel competitive concerns and the market's views of potential for holiday pricing pressure; and (3) Fitbit has concrete opportunities to diversify its revenue channels away from strictly direct-to-consumer through corporate wellness channels—nearly a $100 million revenue run-rate business today with the chance to grow significantly larger."

For an analyst ratings summary and ratings history on Fitbit click here. For more ratings news on Fitbit click here.

Shares of Fitbit closed at $32.40 yesterday.

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