Fitbit Inc.’s stock tends to make big swings after earnings, and the reaction to the company’s latest report was no exception.
Shares of the wearables pioneer closed down 13.8% in Thursday trading after the company reported better-than-expected holiday-period results but delivered a weak forecast for the current quarter. It marked the seventh time in the past 10 post-earnings trading sessions in which Fitbit’s stock FIT, +3.44% recorded a double-digit move.
The stock posted its worst single-day decline since January 2017 as analysts debated the progress of Fitbit’s health-tech business.
Wedbush analyst Michael Pachter wrote that the company’s “guidance for continued earnings losses is somewhat disappointing.” He remained upbeat about the health-care opportunities that Fitbit could tap into, but contended that health-industry revenue doesn’t seem like the company’s “primary focus” following the latest report.
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“We think there is significant long-term potential for [Fitbit Health Solutions], although there is too little known at this point to quantify the opportunity,” wrote Pachter, who downgraded the stock to neutral from outperform earlier in February, in part due to a lack of disclosure around this area of the business.
He told MarketWatch in an email that the company’s target for $100 million in annual health-solutions revenue for 2019 reflects in part that “they aren’t trying very hard” in these efforts. Another factor, according to Pachter, is that adopting wearables “is a huge undertaking for employees and insurers, involving privacy issues and employee education.” That means that the rollout will be “very slow,” he said.
Chief Executive James Park told MarketWatch on Thursday that he expects the health-solutions business to grow at a “healthy” double-digit clip in 2019, which would mark an acceleration from recent growth of 8%. He called the $100 million target “a pretty significant milestone.”
Morgan Stanley analyst Yuuji Anderson reiterated his downbeat view of Fitbit’s prospects, writing that the company’s legacy device business “continues to overshadow new opportunities.” He’s concerned that “difficult demand trends in consumer wearables” will lead to an acceleration in cash burn and hurt Fitbit’s ability to generate earnings power.
He rates the stock at underweight with a $4 target price.
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D.A. Davidson analyst Tom Forte, however, was encouraged by the latest report and upgraded the stock to buy from neutral.
“The upgrade is primarily a reflection of our encouragement in the improvements management has made to the company’s operating results, including a return to both unit and sales growth,” he wrote in a note to clients, while upping his 12-to-18-month target price to $7 from $5.50. “Additionally, while still early, we are pleased by the progress in its health-care services efforts.”
William Blair’s Jeffrey Garro said that the latest numbers show Fitbit is “moving in the right direction,” including with a return to revenue growth, though he argued that “expectations had emerged for a more meaningful inflection point.”
Shares have gained 11% over the past three months, while the S&P 500 SPX, +0.70% has risen 1.6%.
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