3 Reasons Fitbit Could Be An Attractive M&A Target

Shares of Fitbit Inc FIT gained about 30% Monday following an M&A report and the company "could possibly be attractive" to a buyer, according to Morgan Stanley.

The Analyst

Morgan Stanley's Katy Huberty maintains an Underweight rating on Fitbit's stock with a $3.20 price target.

The Thesis

Reuters reported Monday Alphabet Inc GOOG GOOGL made an offer to buy the fitness tracker and smartwatch maker. Under Alphabet's umbrella, Fitbit would provide three benefits, including:

• Valuable IP in wearables;
• Partnerships with notable health care companies and providers; and
• Data collected from 27 million devices that can be further developed.

Huberty said Fitbit plays a role in the domestic $3.5 trillion health care market dominated by tech companies looking to invest to "become the next agent of change." As such, Fitbit would look attractive to a potential buyer, especially one with its own health care partnerships in place that can be leveraged to increase monetization.

Fitbit's stock appreciation on Monday values the stock at around 0.5 times EV/2020 revenue, which is consistent with a two-year trailing average. For the time being, the research firm is sticking with its $3.20 price target which factors in expectations for continued cash burn, lower growth and margins versus its consumer electronics peers.

Price Action

Shares of Fitbit were trading higher by 1.4% Tuesday at $5.68.

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