Fitbit's Inventory Into Christmas Signals Risk To Q1 Street Estimates

Pacific Crest said the Street’s first-quarter estimates for Fitbit Inc (NYSE: FIT) may be at risk, as checks show the company’ days of inventory have trekked higher exiting the quarter.

“While a Q1 miss could mean more downside, we think buy-side expectations are below sell-side and thus remain Sector Weight on the name,” analyst Brad Erickson wrote in a note.

The brokerage’s U.S. channel checks in mid-December indicate that Fitbit's days of inventory remain above targeted levels at nearly 18 days.

“Blaze and Alta sales volumes held up a bit better than we would have thought, but we believe Charge 2 inventory is particularly bloated in certain parts of the country and Flex 2 demand has proven disappointing throughout,” Erickson highlighted.

As a result, the analyst now expects units to decline next year by 15 percent versus prior estimate of down 7 percent. For 2017, Erickson cut his EPS/revenue forecast to $0.01/$1.999 billion from $0.25/$2.193 billion. The consensus calls for EPS of $0.65 on revenue of $2.44 billion.

Focus For The Future

Commenting on the acquisitions of Pebble and Coin, Erickson said there are limited opportunities in possible software application for a fitness tracker such as payments. The analyst believes the company should focus on healthcare through new sensor development or insurance/provider partnerships.

“However, we need more visibility of that before getting more constructive,” Erickson added.

At last check, shares of Fitbit were down 0.6 percent at $7.39.

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