Nautilus Downgraded; Long-Term Growth Goals Will Be Challenging In 2017

D.A. Davidson’s Andrew Burns believes that while trends have improved for Nautilus, Inc. NLS post-election, there continues to be headwinds during 2017.

Burns downgraded the rating on the company from Buy to Neutral, while lowering the price target from $24 to $20.

Challenges In 2017

Based on an analysis of various metrics, the analyst believes Nautilus “is participating in the normal seasonal uptick in demand. While this should put election noise in the rear view mirror, we believe offsetting growth trajectories across both product lines and retail channels could weigh on 2017 performance.”

Maintaining a positive view of the company’s long-term potential, the analyst mentioned that given the current industry headwinds and growth initiatives, a more muted growth trajectory was expected for 2017.

Headwinds Persist

“Our primary takeaways are that the Max Trainer continues to perform well, TreadClimber sales are post-peak, and our 4Q estimates appear attainable,” Burns stated, adding, “At the start of 2017, we believe the normal surge in consumer interest in the category is well underway.”

The analyst also expressed concern regarding Nautilus’ growth initiatives being partly offset by “retail challenges” and product maturity.

In addition, Burns estimates that 55–60 percent of the company’s business, across both segments, had been and would continue to experience robust organic growth.

“Conversely, we believe the balance of the portfolio is facing headwinds including: a postpeak TreadClimber decline, and numerous retail issues such as weak traffic, store closures, and consolidation,” the analyst went on to say.

Therefore, the analyst estimates 7 percent organic growth in 2017, with acceleration to 10 percent in 2018.