Leerink Analyst Sees Long-Term Potential For Fitbit

In a report published Wednesday, Leerink analyst Steven Wardell initiated coverage of Fitbit Inc (NYSE: FIT) with an Outperform rating and a $44 price target. The stock is currently trading at about $37 per share. He says that "powerful secular trends have created important new markets for consumer fitness devices and...fitness social networks."

He believes Fitbit is well-positioned to take advantage of these trends.

Attractive Fundamentals

Wardell believes that "FIT meets or exceeds the attractive operating characteristics of a premium consumer electronics company." These features, he says, include a fast-growing top line as well as a large and expanding addressable market.

Wardell projects revenue growth of 111 percent and 30 percent respectively in 2015 and 2016, driven primarily by increasing penetration of both domestic and international markets.

He sees his already high 23x multiple expanding further if the company can encourage increased engagement in its social network.

Strong Market Interest

Wardell notes, perhaps unsurprisingly, that there is vast consumer and fitness trainer interest in Fitbit. But less expected is the excitement he says exists in the corporate world.

Related Link: Who's The Next Fitbit?

According to Wardell, "enterprise benefits leaders are increasingly interested in Fitbit's products to promote a healthy culture, reduce employee health costs, and improve their corporate wellness programs."

He sees Fitbit as the standalone leader in this "nascent corporate wellness market" as well as the larger "$3.7 billion addressable market" that includes personal trainers and regular buyers.

According to Wardell, its dominant position has yet to be fully acknowledged by financial markets and "provides an opportunity for additional upside in the next two years."

A Formidable Product Line

Wardell believes Fitbit has a diverse and competitive set of products that will help it thrive in a growing market.

"We believe Fitbit's health data platform, along with its social network, proprietary devices, and leading consumer brand will insulate Fitbit from activity tracker competitors at the low and mid tiers. Smartwatches and smartphones, while powerful, we feel will ultimately occupy and serve a different piece of the wearables market due to inherently different uses, capabilities, and customers."

FIT is trading up about 2 percent on Thursday, rebounding from its worst day since last week's IPO on Wednesday.