Is Fitbit Still A Buy Heading Into Earnings?

In a report published Tuesday, Piper Jaffray analyst Erinn E. Murphy maintained an Overweight rating and price target of $52 on Fitbit, Inc. FIT. The analyst expects the company to report robust results for Q2 when it releases its first reported quarterly earnings report as a publicly traded company on August 5.

The analyst expects the company’s Q2 sales and EPS to beat the estimates, driven by new product adoption. “More importantly, we are expecting a guide-up on Q3 given continued momentum of new product and recently increased manufacturing capacity for Charge HR,” Murphy said.

The Estimize consensus estimate for Fitbit for Q2 is $0.12, as compared to the Street expectation of $0.08.

Murphy also mentioned that the long-term positive view of the company was based on its leadership position in the wearable space, as well as the opportunity for Fitbit to reach a wide addressable market, both internationally and domestically.

According to the Piper Jaffray report, “Admittedly, shares have a higher multiple than the majority of stocks across our universe, but given the long-term growth prospects we think FIT deserves to trade similar to high-growth consumer facing brands.”
For Q3, the analyst believes that the Street consensus could prove to be conservative, given the new product momentum and higher manufacturing capacity for Charge HR. The 1H sales estimate has been raised 183 percent year-on-year.

In the long term, the analyst expects the company to be able to achieve EPS of $2.50-$3.00, driven by traction in the recently launched products and the growing global distribution capacity.

According to Murphy, “Fitbit has shown some of the most impressive sales growth we have seen in our universe with a 3-year historic CAGR of 274 percent.”

Over time, the analyst expects the company to achieve sales of $3 billion to $4 billion, with operating margins of 22-24 percent in the longer term.