BofA Is Buying Fitbit Because Of These Three Reasons

Fitbit Inc FIT shares have declined 35.5 percent over the past three months, touching a low of $27.86 on November 13.
Nat Schindler of Bank of America Merrill Lynch has upgraded the rating on the company to Buy, while lowering the price objective of $36.
The upgrade is based on the conservative Q4 guidance, international sales and corporate wellness program ramp and “underwhelming” competitive products for the upcoming holiday season.

Analyst Nat Schindler mentioned that the Q4 guidance appears conservation, based on implied growth deceleration in unit sales. In 4Q14, the only launch in December was Charge, while for the 2015 holiday season, Fitbit will have Charge, Charge HR and Surge to help drive the company’s sales.

International sales for 4Q15 are also expected to be driven by the expansion of international advertising to more countries.

“Like all consumer device companies, competitive risk remains but given the corporate buying and the limited competitive offerings near-term, we see this risk shifted into ’17,” Schindler stated.

In addition, large corporations have continued to sign up onto Fitbit’s health and wellness platform, which suggests that the company’s “platform play is beginning to build with new dashboard features.”

Schindler expects this to drive revenue beats in FY16, driven by increased device sales, “while the additional dashboard data should help Fitbit build a stronger consumer social vehicle for maintaining Fitbit user engagement long term.”

On the other hand, while various other companies have launched new fitness trackers or updated their existing ones, ahead of the holiday season, Schindler believes that several of these products have “minor improvements to last year’s models with no “must have” features to draw consumers away from FIT, likely removing risk into ‘16.”

The revenue and EPS estimates for FY16 have been raised, following the meaningful Q3 beat.

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