Fitbit's (FIT) New Products will Drive Strength in Q4, Says Morgan Stanley

August 30, 2016 9:22 AM EDT
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Morgan Stanley maintained an Overweight rating on Fitbit (NYSE: FIT) with a price target of $31. Comments follow yesterday's launch of the Flex 2 and Charge 2. Analyst Jerry Liu thinks these updates will increase adoption and engagement. He also thinks fitness trackers will be very popular this holiday season, and he sees Fitbit as the main beneficiary.

"Fitbit made significant improvements in its design and software this year, which are reflected in the Flex 2 and Charge 2," said Liu. "The new trackers have a similar design language as Blaze and Alta, which were well-received by customers and garnered four-star or better ratings on Charge 2's display is four times bigger than before, and now supports interchangeable bands. It has numerous new software features, highlighted by multi-sport and VO2 max tracking. Flex 2 is 30% smaller than before and now swim-proof. Fitbit also updated the Blaze with new software features and accessories, and launched a new Fitbit app feature called Adventures, which takes users on virtual tours of famous hikes and runs through their app as they log steps. Both products maintained their price points (Flex 2 $100, Charge 2 $150), and will start shipping in September as expected."

Discussing the holiday, the analyst said, "Best Buy reported its July quarter last week. Domestic comp beat expectations (+0.8% vs. -0.4%), which the company attributed to several categories led by 'health and wearables.' We believe Fitbit is a key driver of that strength, and both Fitbit and Garmin gained shelf space at Best Buy earlier this year. Our checks also suggest retailers expect a strong holiday season with Fitbit, and especially with Charge 2, which should be the most popular Fitbit. We believe most of the demand upside will be reflected in 4Q16, as retailers destocked legacy products in 3Q but will not finish restocking for the holidays by the end of 3Q. Management noted on a call today that new product launches are in-line with expectations, and there are no changes to Fitbit guidance."

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 $14.94 yesterday.

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