The Street Resets Expectations For Nautilus; Imperial Raises To Outperform

Nautilus, Inc. NLS, the consumer fitness company, received an upgrade from Imperial Capital on Monday. Analysts raised its rating from In-line to Outperform, and upped its price target to $20 from $16.

Imperial Capital cited positive management meetings as the reason for the upgrade, giving analysts confidence in the company’s 2017 and 2018 outlook.

“We are raising our rating on NLS shares given the recent reset in street expectations, compelling valuation, and potential for revenue growth to accelerate later this year and in 2018,” Imperial Capital analyst George Kelly said. “Additionally, the company’s under-leveraged balance sheet and strong free cash flow generation gives it flexibility to make further share repurchases or acquisitions.”

Imperial Capital was upbeat about the future of the company following a series of management meetings it hosted last week, and outlined five key catalysts that will push shares higher:

• Direct segment will face easy comps in 3Q and 4Q
• HVT, a new direct product, launches in 2Q
• Heavy promotions in the retail segment have subsided
• Positive sell-through trends should bring more normal sell-in at a major retail partner
• Newly introduced Octane commercial products appear well positioned

Nautilus has also fared much better than its competitors when it comes to e-commerce strategy, generating 55-60 percent of its business online, with Amazon.com,Inc.AMZN being its largest customer with roughly 11 percent of sales.

Despite the increased confidence from analysts, shares of Nautilus have struggled in 2017, down over 10 percent.