JPMorgan Upgrades GoPro (GPRO) to Overweight; Analyst Sees Positive Catalysts Despite Lockup Expiration

(Updated - December 12, 2014 9:11 AM EST)

JPMorgan upgraded GoPro (Nasdaq: GPRO) from Neutral to Overweight, but maintained its price target at $70. Analyst Paul Coster sees positive catalysts ahead despite upcoming lockup expiration. He also said checks indicate lean channel inventory and stock-outs.

"The stock is down ~24% since its secondary offering in mid November (S&P flattish) and ~14% below our price target, and we think risk reward has tilted favorably," said Coster. "There is some near term risk associated with the Dec 23rd lock-up expiry (~15mm shares), but otherwise we enter a period full of positive catalysts: 1) stock-outs during the holiday season; 2) branding activities at CES in early January; 3) strong 4Q results and evidence of lean 1Q inventory; 4) upward revisions to 1Q consensus; 5) international expansion (esp. China). We recommend buying this strong growth-stock at a more reasonable price ahead of catalysts."

"This week’s channel checks suggest demand for the black edition remains robust, despite the $100 ASP increase to $499, with stock-outs across some regions. Sales mix remains skewed towards the Black edition, but demand for Silver (ASP increased by $100 to the same price as the prior-gen Black) is also solid we believe," continued the analyst. "Google trend analysis confirms higher interest in the Hero 4 Black overall, with web activity peaking on Black Friday. Otherwise, not much has fundamentally changed since our update after the secondary offering (see Note). We touched base with the CFO yesterday; his tone remains upbeat and he mentioned that they are close to launching in China."

Coster noted the upcoming Dec 23rd lockup expiration was around 15.2 million shares, and could weigh on the stock near term.

"The current float is ~36mm shares (~24% of total diluted shares), and the expiry on the 23rd could potential increase the float to ~51mm shares or 34% of total diluted shares. Note ~18mm stock options will vest and will be available for sale at various times beginning Dec 23rd, however eligible sales will come from employees with less than 25K shares of stock. Meanwhile short-interest stands at about 10 million shares (Bloomberg) nearly one-third of the float but less than one day of trading volume," he added.

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

Shares of GoPro closed at $60.05 yesterday.

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