GoPro IncGPRO recently unveiled its new line of HERO7 cameras, but it might not be enough to boost the stock right now.
The Analyst
Morgan Stanley analyst Yuuji Anderson maintained his Underweight rating and $5 price target.
The Thesis
HERO7 could disappoint some investors' expectations for upside in the December quarter, Anderson wrote in a note. He said demand for the high-end HERO7 Black is consistent with last year's HERO6 Black, but the lower-priced Silver and White has been weak.
Management sees a successful refresh of the lower-end models to be key to its plan for recovering gross margins and return to growth, Anderson said.
Morgan Stanley now assumes HERO7 Silver, White and other legacy products would account for about 20 percent of its Q4 shipments and see 20 percent year-over-year growth.
The firm expects GoPro's stock to react negatively if there isn't likely to be upside to estimates when the company reports results Thursday. This, along with a lack of evidence of an improvement in demand heading into the holidays, could pose downside risk to Morgan Stanley's $5 price target.
"Absent meaningful improvements ahead of Black Friday, incremental channel fill could be followed by higher than expected channel drawdown in the March quarter and discounting that would undermine current consensus assumptions for gross margin improvements and revenue growth in 2019," Anderson said in the note.
Price Action
GoPro shares have shed about 19 percent in the year-to-date period. The stock traded around $6.10 at time of publication.
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