What Does The Street Think Of Fitbit Now?

Shares of Fitbit Inc FIT have plunged more than 20 percent after the wearable device maker issued a weak outlook for the first quarter despite reporting better-than-expected earnings for the fourth quarter.

Following the weak forecast, the stock faced a slew of downgrades from various brokerages including Baird, Pacific Crest, and Leerink.

Downgrades

Baird analyst William Power said the weak outlook heightens the risk for the balance of the year. Despite the significant recent weakness and the longer-term digital health opportunities, he expects new product uncertainties and competitive risks to continue to overhang the shares. Power cut his rating to Neutral and price target to $16 from $30.

Pacific Crest's Brad Erickson downgraded Fitbit to Sector Weight due to risk of hardware commoditization, a lack of leverage and poor user metrics. He added that multiple expansion opportunities from corporate wellness are becoming more limited, and despite the sell-off, fundamental downside risk remains, which does not justify the risk/reward.

Steven Wardell of Leerink also downgraded Fitbit to Market Perform and trimmed price target to $18 from $33 stating that the first quarter sales dip means rest of year must be strong with new products whose uptake is uncertain. He noted that heavier marketing and R&D spend, though necessary for sales and innovation, weighs on EPS growth.

Still Bullish

Meanwhile, there are some analysts who are still bullish on Fitbit citing the company's market leadership position in wearable devices and strong growth opportunities.

Raymond James analyst Tavis McCourt said although the first quarter guidance was below his expectations due to costs and transitions around two major product launches, full-year guidance supports his view that strong double-digit growth should continue for Fitbit.

"We view the shares as attractively valued, trading at 14.4x our 2016E non-GAAP EPS, a meaningful discount to the S&P 500 despite its strong growth profile and market leadership position," said McCourt who has an Outperform rating on shares.

Oppenheimer's Andrew Uerkwitz said, "We continue to be buyers of stock on the impending digital health revolution and Fitbit's best positioning to capitalize. Our Outperform rating on Fitbit reflects a positive near- to medium-term view of wearable device sales both from the perspective of FIT as clear market leader, and from growth estimates for the overall wearables market."

SunTrust's Bob Peck sees long-term opportunity in Fitbit.

"While investments may be lumpy as FIT focuses on growth of the nascent market globally, we continue to believe there is a significant long-term opportunity for the company to deliver health/fitness solutions to consumers as well as enterprises and health insurers," said Peck, who has a Buy rating on the stock.

Ross Sandler of Deutsche Bank said "Having admittedly been on the wrong side of the stock call since the IPO with our Buy rating, we view the risk/reward as favorable here, especially given the numbers reset and negative sentiment backdrop."

Meanwhile, Sterne Agee's Rob Cihra said the stock stays challenged a bit longer to prove out its second act. He thinks FIT ultimately needs more/new breakthrough sensors, value-added/sticky software, and corporate wellness leverage. Cihra has a Neutral rating and $18 price target on shares.