Just when it seemed that GoPro was catching a break, suddenly it recalled its first attempt at building a drone, the Karma. Most bulls were banking on it being a success, so this is a huge blow to the company, and as a result, numerous analysts downgraded GoPro stock on concerns that the Karma recall means the company has basically signed its own death certificate.
GoPro stock to Neutral
One of the newer downgrades of GoPro comes from analysts at Raymond James, who moved to Market Perform from Outperform in a note on Thursday morning. Also Wedbush analyst Nick McKay downgraded GoPro stock to Neutral from Outperform and slashed his price target from $12 to $9 per share in a note on Wednesday. His new rating reflects the execution problems and recall of the Karma drone.
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Piper Jaffray analyst Erinn Murphy already had an Underweight rating and $9 price target on GoPro stock and expressed surprise at the recall of the drone. She said it looks like “a ‘Karma Christmas’ is canceled” as a result of the recall and that she was surprised by the “modest” number of Karma units that had been sold initially. She was also very disappointed because it seems unlikely that the drone won’t be available for the Christmas shopping season.
GoPro downgraded to Sell
Other firms were much harsher with their updated views of the company. Dougherty & Company analyst Charles Anderson cut his rating on GoPro stock from Neutral to Sell and set a $6 per share price target. He gave three reasons for the downgrade, which came right after the Karma recall was announced.
One of his concerns was the series of “operational stumbles,” with the latest being the recall of approximately 2,500 drones due to power failures reported by a handful of users who posted videos of the problem online. He noted that the company has said that the Karma has been having problems since the beginning as production issues kept it from full distribution out of the gate.
Anderson also reported that his checks suggest demand for the new Hero5 camera is weak so far. Further, he thinks GoPro’s valuation is still stretched because the shares were still trading above their lowest EV/S multiple when he wrote his note.
Bank of America Merrill Lynch analyst Jason Mitchell downgraded GoPro stock to Underperform last week with a $9 price target and weighed in on the stock again in a Sept. 9 report following the drone recall. He believes the company has no more “wiggle room” left for the fourth quarter because it didn’t cut guidance when announcing the recall. He also said that it increases the chance that the action camera maker will miss guidance.
Shares of GoPro slipped by as much as 1.1% to $10.30 during regular trading hours on Thursday after plunging on Wednesday due to the Karma recall.