Morgan Stanley On Fitbit: Pullback Creates Buying Opportunity

• Fitbit Inc (NYSE: FIT) shares have declined 42.52 percent over the past six months, dropping almost to their 52 week low on January 5, at $24.30.
• Morgan Stanley’s Katy L. Huberty has maintained an Overweight rating on the company, with a price target of $99.
• Huberty believes that the recent pullback in the stock offers an attractive buying opportunity, ahead of the strong results expected for the December quarter and the March quarter guidance.

Analyst Katy Huberty stated that the company announced its latest smartwatch, Blaze, on January 5, ahead of the CES.

“Management called it a "smart fitness watch," which means it has new, smarter features – such as FitStar integration, automatic activity recognition, and a new version of Fitbit's heart rate sensor – while maintaining a stronger focus on fitness than a general purpose smartwatch,” Huberty mentioned.

Blaze is priced at $199 and set to start shipping in March, along with its changeable watch bands, which are priced in the range of $29 to $129. However, Blaze does not come with GPS on board and needs to be connected to a smartphone for GPS.

Huberty expects the new product to be accretive to Fitbit, and explained that “Blaze has a five-day battery life, much longer than most smartwatches, which last about one day.”

There is also expected to be minimal cannibalization of Surge, which is priced at $250 and is the only device that comes with GPS capabilities. “Potential buyers of the $130 Charge or $150 Charge HR may choose to pay up for the Blaze which has more features,” Huberty said.

The interchangeable watch bands are also likely to boost margins, as well as ASPs in the high $80s.