Fitbit Is Trading At A Discount; SunTrust Maintains Buy

Fitbit Inc FIT reported its 2Q results ahead of expectation and kept its full-year guidance unchanged, implying “solid operating leverage” in 4Q16, SunTrust Robinson Humphrey’s Robert S. Peck said in a report. He maintained a Buy rating on the company, with a price target of $17.

Fitbit reported strong 2Q results, with virtually all matrices ahead of expectations. Unit sales of 5.7M came with ASPs of $99. The company recorded 47 percent y/y revenue growth, despite a revenue hit in APAC on account of a key retailer closing 370 stores in Australia and channel draw down.

Fitbit did report one miss, with GM being impacted by a onetime warranty reserve charge for legacy products, analyst Robert Peck mentioned. Excluding this, margins would have been ~50.5 percent, ahead of consensus. At $115M, Sales & Marketing was better than feared and adj EBITDA of $48M beat the Street’s $44M.

Laying The Base For A Strong 4Q

Through 1H16, Fitbit was in “investment mode,” spending aggressively on R&D and marketing. Peck added that 3Q is seasonally slow and would likely be a transition quarter. Despite this, Fitbit maintained its full-year guidance, which implies significant top-line acceleration in 4Q, driven by new products and substantial operating leverage.

“While APAC outlook remains uncertain going into 3Q, we note Fitbit has a history of guiding conservatively, and actual results could be better,” the analyst wrote. He added that while Fitbit’s shares were trading at a discount to peers, the strong results could abate concerns related to fitness trackers being merely a fad.

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