Does Wall Street Wear FitBit?

Many Wall Street analysts initiated coverage of Fitbit Inc FIT on Monday. Here is a highlight of some of the more notable initiations. SunTrust: ‘Only The FITest Survive' Robert (Bob) Peck of SunTrust Robinson Humphrey initiated coverage of Fitbit with a Buy rating and $50 price target. According to Peck, Fitbit expanded its US market share from 59 percent in 2013 to its current "dominant" 85 percent market share. On the international front, the company has a leading 34 percent market share. Peck cited IDC data which pointed out consumer spending on wearable devices will grow to $30 billion by 2019, faster than any segment in the consumer electronics market. The analyst also added that investors are now evaluating the long term potential of Fitbit (and the sector as a whole) and are beginning to realize how the company can evolve beyond hardware into services. Bottom line, the company has a "strong" revenue growth rate of 150 percent in 2014 along with "solid" gross margins of 45 to 50 percent. Deutsche Bank: ‘Fit For Further Upside' Ross Sandler of Deutsche Bank initiated coverage of Fitbit with a Buy rating and $50 price target. According to Sandler, shares of Fitbit are poised to move higher given the "massive" total addressable market and a current low penetration rate. The analyst also noted that the sector is in a "rapidly evolving" with a "strong and prolific" ecosystem around health and fitness which bodes well for the company. Sandler also noted that Fitbit only needs to reach an eight percent "attach rate" of smartphone owners in the developed countries it sells into in order to generate a 20 percent shareholder return. Bottom line, Fitbit represents the first "pure play" company to usher in the "Connected Life" era which could very well prove to be the "biggest trend we see in global consumer technology." Barclays: ‘FIT Just A Bit Expensive' Matthew McClintock of Barclays initiated coverage of Fitbit with an Equal Weight rating and $45 price target. According to McClintock, Fitbit will likely see its revenue surge from an estimated $1.4 billion in 2015 to $3.3 billion in 2018. However, even under a "stretch" upside scenario of $6 billion of revenue in 2018, the analyst noted that shares "appears somewhat expensive" today given the "substantial uncertainty" within the early stages. McClintock noted that shares are trading at 72.5x his 2015 earnings per share estimate of $0.58 and 52.7x his 2016 earnings per share estimate of $0.80. The analyst added that these valuation levels "remains too elevated" to accommodate shareholders for the risk of owning a company in an early stage in a "highly disruptive" industry. As such, McClintock concluded it is "difficult" to recommend shares at current levels and suggested waiting on the sidelines for a better entry point. Raymond James: Shares Balanced Post 100 Percent IPO Move Tavis McCourt of Raymond James initiated coverage of Fitbit with a Market Perform rating with no assigned price target. According to McCourt, Fitbit is "almost unequaled" in its growth potential among other peers, but its current valuation "largely reflects this reality." McCourt argued that under a pessimist scenario, shares are worth at least $24 per share (based on a 4.0x revenue multiple). On the other hand, under an optimistic scenario in which the company's earnings and growth are maintained at 60 percent into 2016 (i.e achieve an earnings per share of $2), shares would be valued at a 30x P/E multiple, or $60 per share. Given the fact that shares already jumped more than 100 percent since its IPO and trading at 5.4x 2016E EV/revenue and 55.6 2016E P/E, it is at a "meaningful" premium to its closest peers. As such, shares "appear fairly valued" at today's level.