Fitbit Has Potential For A Q3 Upside Surprise

Previewing Fitbit In (NYSE: FIT)'s third-quarter results, SunTrust said it sees scope for upside surprise from the company's guidance for a 15 percent sequential drop in third-quarter revenues based on expectations of 12.5 percent unit sales decline and a 1.5 percent decline in ASP.

Rationale For Outperformance

Analyst Robert "Bob" Peck premised on his optimistic stance of seeing a 3Q beat on a couple of factors:

• Fitbit is into the habit of guiding conservatively.
• The guidance did not take into account new unit shipments (especially of Flex 2 and Charge 2) in the third quarter, although these were available at retail.

Shares Down On ...

• Fears that Charge might not be selling well.
• Aetna Inc (NYSE: AET) is subsiding Apple Inc. (NASDAQ: AAPL) Watch, Fitbit's rival product.
• Results of a study suggest trackers may not help users lose weight.

Related Link: What Are Wall Street's "Cult" Stocks?

Investor Focus

SunTrust is of the view that investors will vest their focus on impact, if any, from low end and high end competition, demand for new products, development of corporate, wellness/health insurance opportunities, the potential ramp of services revenues, litigation status and the uses of the balance sheet.

Maintaining Estimates

SunTrust maintained its third-quarter estimates of 5 million units in volumes, $97 of average selling price, $500 million in revenues and $75 million in EBITDA. The firm also believes the company is well positioned for strong revenue growth and margin expansion in the second half.

The firm has a Buy rating on the shares of Fitbit and a $17 price target, representing 1.2 times its 2017 revenues and 6.5 times its EBITDA. The firm termed the valuation as attractive. Overall, SunTrust remains optimistic on Fitbit.

At time of writing, Fitbit's shares were up 0.69 percent at $13.17.

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