Longbow Research upgraded GoPro to “Buy,” believing a selloff due to concerns over the launch of Google Clips was overdone and expectations that the company is set to deliver 2018 earnings growth solidly above Street estimates.
Joe Wittine, the lead analyst, in a note to clients on October 18 said he expects the earning growth to be driven by mid-teens growth for camera ASPs, improved gross margins from the in-house SoC (security operations center) and disciplined management of fixed costs and channel inventory. Due to overall expectations of improved execution, Longbow raised its 2018 EPS forecast by 22 cents to 61 cents a share, well above the consensus estimate of 33 cents.
“For this call to work, we need the just-launched $499 HERO6 Black to not be a flop,” Wittine wrote. “It is very early, though we have obtained some initial channel reads which show (1) solid demand from GPRO’s base, (2) measured but good-enough interest from mainstream consumers, and (3) solid execution that stands in stark contrast to last year’s HERO5 launch.”
He noted that manufacturing problems and a “squabble with Amazon” had led to HERO5’s underperformance. The analyst added that reviews for HERO6 Black from influencers “are solid, with H6B firmly entrenched as the best action camera available”
Wittine said his call may be “a few months early” since GoPro’s first quarter is being seen as “big catalyst” when efforts to wean inventories first start to pay off. But he also said due to concerns over the introduction of Google Clips, the stock is off 17 percent since its October 3 close to present a buying opportunity.
He added, “We think any Google bearishness is misguided, and do not see the company making a larger push into high quality video cameras.”
Longbow Research has a price target of $13.00. On Thursday, GoPro’s shares closed at $9.21, down 26 cents.
Photo courtesy GoPro
