The technology sector has endured several obstacles this year, from strong currency headwinds to the decline of the PC. Analysts weigh in on Fitbit Inc (NYSE:FIT) and NVIDIA Corporation (NASDAQ:NVDA) as each company describes how it is faring against macro challenges.
Earlier this week, Fitbit released strong Q3 earnings that topped Street estimates. Analyst Erinn Murphy of Piper Jaffray weighed in on the stock with an Overweight rating and a price target of $60.
Fitbit reported third quarter sales of $409 million (beating $354 million estimate) and adjusted EPS of $0.24 (above $0.09 estimate). The total units sold were 4.8 million (above estimate of 4.0 million). Furthermore, gross margin was 48.3%, ahead of estimates of 47.2%.
In 2015, Fitbit launched several new products, including the Charge HR, Charge, and Surge, which contributed to 79% of sales in the third quarter, versus 78% in Q2). According to Murphy, “Management indicated that ~80% of their inventory increase related to products launched within the last 12 months.”
In a separate announcement, Fitbit is proposing to sell 7 million shares and selling shareholders are proposing to sell 14 million shares. Further, company released the lock-up restrictions for Fitbit employees for 2.3 million shares, effective from November 4. Murphy stated, “While fundamentals were strong, the announcements of the earlier release of the lock-up and secondary likely weighed on shares in the aftermarket.”
Murphy has rated Fitbit 7 times in the past with a success rate on the stock at 43% and average loss of -4.1% per FIT recommendation when measured over a one-year horizon. Out of 14 analysts polled by TipRanks who cover Fitbit, 10 of them have recommended a Buy while 4 analysts are on the sidelines. No analyst has a bearish view on the stock. The average 12-month price target for the stock is $56.65, marking about a 50% potential upside from current levels.
Ahead of the Q3 FY16 earnings of NVIDIA, Rajvindra Gill from Needham weighed in on the technology company by downgrading it to Hold from his earlier Buy rating. Gill has not assigned a specific price target to the stock.
In a report sent out to investors, Gill cites valuation as the primary reason behind this downgrade. In the first week of August, Gill had upgraded NVDA to Buy, and he believes since then his investment thesis has played out and the stock price has behaved according to how he had predicted. Since August 2014, there has been a 63% increase in NVIDIA’s stock against an increase of 8.5% for the S&P 500 for the same period.
As for January guidance, the Street estimates are suggesting a 1.9% Q/Q growth for the company. However, Gill suggests these estimates could be aggressive because of the overall weakness in the PC environment and the broad macro slowdown that has affected the consumer market.
Talking about the royalty payments stream from Intel, which is set to expire in first quarter of 2017, Gill says he’s yet to see “tangible evidence that NVDA can replace the INTC royalty payments.” Excluding INTC royalty stream, the stock price is reflecting core NVDA earnings power of nearly $1.30. He adds, “We believe it’s unlikely that NVDA will meaningfully replace the INTC royalty revenue.”
Out of 30 ratings for NVIDIA’s stock, Gill has a success rate of 52% with an average return on the stock of 11.2%. Out of 17 analysts polled by TipRanks who have recently rated NVIDIA’s stock, 6 have rated it as a Buy and 11 have rated it as Hold; none of the analysts have recommended to Sell the stock. The average consensus price target for the stock is $25.93, a downside of 8.50% from current levels.