SunTrust Admits They Were Wrong On Fitbit, Downgrades Stock To Hold

Although Fitbit Inc (NYSE: FIT) reported broadly in-line Q3 results, its Q4 guidance implied a sharp decline, raising questions around “customer demand, and the category's maturity,” SunTrust Robinson Humphrey’s Robert S. Peck said in a report. He downgraded the rating on the company from Buy to Hold, while reducing the price target from $17 to $10.

Q4 Guidance

Fitbit guided to 2–5 percent top line growth in Q4, significantly short of the Street expectation of ~40 percent. The guidance reflected weaker global demand, which was offset partially by ~$50 million in unfulfilled demand for Flex2 units.

The sharp decline raises questions around whether the category is saturated, particularly in the US, which accounts for ~70 percent of Fitbit’s sales, analyst Peck stated. He added, “It remains to be seen whether the product refresh in 2017, with new form factors and added functionality, could jump start growth.”

Fitbit has been facing intensifying competition, with companies like Apple Inc. (NASDAQ: AAPL) and Samsung launching their models, according to an article in International Business Times.

The Asia-Pacific region also continues to be challenging, despite the company making substantial marketing investments in the first half of 2016, Peck noted.

In a separate note, Citi’s Stanley Kovler downgraded the rating on the company from Buy to Neutral, while reducing the price target from $20 to $10.

At last check, Fitbit was down 29.66 percent at $9.01.