Bob Peck: FitBit Still A Buy, Worth $52/Share

In a report published Thursday, SunTrust Robinson Humphrey analyst Robert S. Peck maintained a Buy rating on Fitbit, Inc. FIT, while raising the price target from $50 to $52. The company reported robust Q2 results while announcing the 2015 guidance well above the Street consensus. Although the stock declined due to concerns surrounding marketing spend and gross margin, the recent share price increase has been significant. "Given the large TAM, FIT's dominant market position, and likely evolution into hardware +services platform, we remain believers and maintain Buy rating," Peck explained. Regarding the Q2 results, the company reported a 160 percent year on year increase in device sales, driven by geo expansion, seasonality and pent up demand for newer units. The average selling price rose 40 percent, year on year, driven by higher ASPs as well as a higher new device mix. Fitbit also reported a 250 percent, year on year, increase in revenues, significantly above the estimates and the consensus, with the adjusted EBITDA also meaningfully beating expectations. The company also gained several corporate wellness customers, with more than 50 Fortune 500 companies as its customers at present. In addition, the company guided to 2015 revenues and EBITDA above the consensus forecasts. "We think even within the guidance range, there is scope for 80 bps of margin expansion that FIT likely can achieve given it's not competing on price," the SunTrust report said, adding, "While we have raised expense estimates significantly, we still think there is scope for FIT to beat its EBITDA guidance for 3Q and 2015." However, the analyst believes that the 2015 expectations could prove to be conservative, given the company's dominant position in the US market and its supply being barely able to keep up with demand. "Looking ahead, we think FIT will differente via R&D and S&M spend, and likely continue to deliver above market-average growth," Peck added. The unit sales, revenue and EBITDA estimates for 2015 and 2016 have been raised.