Fitbit Inc Rises After Upgrade For ‘Unjustified’ Dive

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Fitbit looks to be in a strong position now that the holiday shopping season is kicking into gear. Analysts from multiple firms expect sold results for the December quarter, and the wearable manufacturer has earned an upgrade from Barclays. Shares climbed by as much as 4.42% to $29.07 per share in morning trading today.

Fitbit upgraded by Barclays

In a report dated Nov. 30, Barclays analyst Matthew McClintock said he upgraded Fitbit from Equal Weight to Overweight but left his price target unchanged at $49 per share. He noted that the company’s stock fell 26% over the last 30 days, compared to the S&P 500’s 1.2% increase over the same time frame.

He called Fitbit “a more proven company with better metrics relative to its IPO period.” He thinks the recent decline in the company’s stock isn’t justified because he sees “meaningful catalysts” for it over the next year or so, including this year’s holiday shopping season, the Consumer Electronics Show, upcoming product launches, new deals for corporate wellness programs, and improvements in margins.

He also thinks the headwinds Fitbit has been facing are minimal now that we are past some of the major concerns like the initial launch of the Apple Watch. Further, he said Fitbit is now the world’s “fastest-growing meaningful consumer company,” as it is expected to post 140% revenue growth year over year this year. He thinks that right now “true growth stories” are simply lacking and called Fitbit’s valuation “just too compelling to ignore.”

Fitbit benefits from leading purchase category

The retail industry in general appears to be struggling right now with the holiday shopping period starting off muted for most retailers and disappointing third quarter results from luxury retailers in particular. However, McClintock thinks Fitbit is doing well because wearables seem to be one of the most popular product categories so far this year.

In his checks, he found that Fitbit’s products were less discounted than those of its peers over Black Friday weekend, a finding similar to what Piper Jaffray reported as well. McClintock added that his channel checks suggest that Fitbit was the “brand of choice” over the weekend even though its products were not discounted. He also reported that, anecdotally, Fitbit dominated marketing efforts for the wearable category over the weekend.

The Barclays analyst expects to see “meaningful” upside to sales this holiday shopping season and likes the possibility of a “networking effect” that may occur next year as owners of Fitbit products recommend them to others, who may then purchase the products, thus spurring sales growth.

What about the competition?

McClintock noted that Fitbit bears remain worried about competition, particularly with tech heavyweight Apple’s entry into the wearable category. However, he noted that Fitbit managed to accelerate its revenue growth year over year over the second and third quarters despite the release of the Apple Watch.

He added that during the third quarter, Fitbit held 88% of the wearable market, compared to last year’s 68% when the Apple Watch wasn’t available.

Apple isn’t the only concern in the area of competition either, as bears are concerned about a competing product from low-end Chinese gadget manufacturer Xiaomi. However, the analyst noted that Xiaomi isn’t in any major retailer in the U.S. yet and that Fitbit has the advantage in the wearable category because its marketing budget for the category is huge at more than $100 million just in the fourth quarter.

Also he said the corporate wellness deals Fitbit has been striking should generate positive impressions, which the company’s competitors do not enjoy.

Solid sales conversion noted for Fitbit

Piper Jaffray analysts Erinn Murphy and Christof Fischer released a wrap-up report on retail covering their observances from this past week’s shopping period. They’re planning to meet with a management team from Fitbit later this week, but for now, they like what they’re seeing in terms of performance from Fitbit.

They report that four of the company’s five major products were promoted on Black Friday. Also the Flex, which they believe is its highest margin product, remained full price throughout the weekend. Then on Sunday, all of Fitbit’s standard prices were moved back to full price, another sign that the company’s sales must be going strong enough that it doesn’t need to cut prices in order to attract buyers.

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