RBC: Buy Fitbit, It's 'Not A Fad'

In a report published Tuesday, RBC Capital analyst Mark Sue initiated coverage of Fitbit Inc (NYSE: FIT) with an Outperform rating and $45 price target.

According to the RBC Capital report, "The connected health/fitness market is in the early growth stages, Fitbit is rapidly gaining share and we see increasing unit/ASP growth with a platform approach. A deeper international push, combined with corporate wellness adoption will help Fitbit grow revenues… helping the stock grow into its premium valuation."

The analyst expects Fitbit to achieve leadership in a rapidly growing market, with the company shipping more than 16 million units in 2015, while its multiple offerings across different price tiers driving robust ASPs.

"The fluid wearables technology market, currently about $25B may grow to $50B over the long-term. A broadening ecosystem, international and corporate wellness growth may enable Fitbit to reach ~$2.3B in revs. in CY17E, a +45 percent CAGR," Sue stated.

Related Link: Who's The Next Fitbit?

Not only does Fitbit have a strong brand that is growing more rapidly than the market, the company also has the ability to grow into a wellness technology platform, beyond wearables. In addition, the consumer shift toward a healthier lifestyle in the U.S. and internationally offers significant growth opportunities.

RBC Capital's survey shows that activity and fitness trackers are not just a fad and there is increasing usage across expanding demographics. Fitbit boasts an active and loyal customer base, with 9.5 million active users as of 1Q15.

"Additional healthcare monitoring convenience applications can drive higher user engagement, while increasing overall penetration," Mark Sue said, while adding, "Our consumer purchasing studies show a clear preference for Fitbit with the broadening third-party application platform further differentiating the brand."

Corporations spend $7 billion annually on wellness programs and are increasing adopting Fitbit's solutions to encourage their employees to adopt a healthy lifestyle, thereby lowering insurance premiums.