Bull Predicts: Fitbit Inc (FIT) Closing Out the Year with Many Monetization Channels and Attractive Valuation

Oppenheimer believes better hardware and software engagement/retention will show up next quarter for FIT.

Fitbit Inc (NYSE:FIT) shares are taking a roughly 5% beating in the market despite largely beating expectations, considering the fitness wearables maker posted a loss against a profit this time last year.

Oppenheimer analyst Andrew Uerkwitz likes what he surveys in this tech player, believing the quarter was a “clean one” thanks to digital health opportunities as well as engagement.

As such, the analyst maintains an Outperform rating on FIT stock with an $8 price target, which represents a 34% increase from current levels. (To watch Uerkwitz’s track record, click here)

Moreover, “We also noticed a key difference in Fitbit’s basic wearables outlook compared to the recent tone from wearables competition. Fitbit noted basic wearable stabilization (slight Q/Q growth 1Q-3Q17) and emphasized their value as nodes bringing users into the connected Fitbit software community. Yes, basic wearable users may drop off faster, but the majority of Fitbit investments have gone into improving hardware and software engagement and retention (we think starts to show next Q). Y/Y unit sales decline isn’t to be ignored, but with ASP growth, stabilizing cash flow (year-end balance guided $660M+) and multiple new monetization pathways exiting the year, we think valuation still looks attractive,” notes Uerkwitz.

For the third quarter, FIT reported $392.5 million in revenue and ($0.01) in non-GAAP EPS, outclassing the analyst’s expectations of $389.2 million in revenue and ($0.02) in non-GAAP EPS. Meanwhile, the company saw a 7% sequential rise to 3.6 million unit sales, but this concurrently marks a 31% year-over-year decline. Positive, average selling prices (ASPs) have experienced a 4% flight to almost $105. While non-GAAP gross margin dipped year-over-year to 45% growth, which the analyst attributes to warranty changes as well as revisions to replacement policies. Additionally, non-GAAP operating expenses experienced a 3% annual climb, as Uerkwitz explains, “some headcount increases were partially offset by marketing spend control.”

For the fourth quarter, the FIT team guided revenues to a range of $570 to $600 million and sets non-GAAP EPS between ($0.03) and ($0.01), all while slimming the full year 2017 outlook. Though the analyst maintains his fourth quarter expectations, his full year estimates “come up on this quarter’s 1 penny beat.” In fact, Uerkwitz is even more bullish for next year’s forecasts, bumping up numbers “on a better controlled cost environment and more confidence in FIT’s opportunities to turn around sales from $1.63B/($0.20) to $1.72B/($0.09).”

Wall Street is torn between caution and optimism when it comes to the tech stock, as according to TipRanks, based on 7 analysts polled in the last 3 months, 3 rate a Buy on Fitbit stock while 4 maintain a Hold. The 12-month average price target stands at $7.00, marking a 17% upside from where the stock is currently trading.

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