Morgan Stanley Remains GoPro Bear; Wedbush Says It Could Turn Bullish Soon

Action camera maker GoPro Inc (NASDAQ: GPRO) reported second-quarter results Thursday that fell short of estimates, but the company guided to a better outlook for the rest of the year.

The Analysts

Morgan Stanley's Erik Woodring maintained an Underweight rating on GoPro with an unchanged $5 price target.

Wedbush's Michael Pachter maintained a Neutral rating with a price target lowered from $6 to $5.50.

Improved Outlook, But Bearish Stance

GoPro's second-quarter EPS and revenue fell slightly short of expectations, but this was offset by management's revised outlook for the back half of 2019, Morgan Stanley's Woodring said in a Friday note.

The camera maker lifted its second-half revenue guidance higher from 4-9% growth to 8-12.5% growth due to healthy demand for the Hero7 and a more optimistic outlook for a fall product launch, the analyst said. 

GoPro's inventory is estimated to be near a three-year low and shouldn't experience any significant channel inventory glut, Woodring said, adding that the company's revised year-end targets look achievable. 

Morgan Stanley's bearish stance on GoPro remains unchanged, as the pace of improvements to the company's core camera could disappoint — and future product launches might not live up to expectations, Woodring said.

If GoPro overcharges for incremental product feature improvements, then 2020 estimates — which call for expanding revenue, margins and earnings — will be at risk, the analyst said. 

Wedbush: Premium Valuation Unwarranted 

GoPro's second-quarter report signals the company's profitability turnaround is "well underway" and marks a reversal from the poor execution years of 2016 and 2017, Pachter said in a Friday note.

The company deserves credit for "re-focusing" on its core action camera and making it clear it will not release a new drone, the analyst said. 

Exiting Thursday's report, it is unclear if GoPro will be able to show sustainable growth, and investors should consider avoiding buying GoPro's stock until management shows it can operate as a growth company again, he said. 

A bullish stance may be justified ahead of a new product cycle launch, but until then a premium valuation is unwarranted, Pachter said. 

The research firm's revised $5.50 price target is based on an unchanged multiple of 12 times on a revised 2020 EPS estimate of 45 cents.

Price Action

GoPro shares were down 13.92% at $4.33 at the time of publication Friday. 

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