Fitbit Gains Most Since June as Morgan Stanley Raises Rating

  • Bank sees lower risk of `cannibalization' from Apple Watch
  • Fitbit has 21 percent of $10 billion market, bank says

Fitbit Inc. jumped the most in two months as Morgan Stanley upgraded the stock to overweight, the equivalent of a buy rating.

Shares of the company, which makes wearable devices that monitor physical activity and sleep patterns, rose 11 percent to $35.46 at the close in New York on Tuesday. It was the stock’s biggest gain since June 30. Fitbit went public on June 17 at $20 a share.

“We see less Apple Watch cannibalization risk” for Fitbit’s products, Katy Huberty, an analyst for Morgan Stanley wrote in a note to investors. “Fitbit’s leadership in a large ($10B) and fast growth” market merits a high valuation and long-term view of the stock. Morgan Stanley set a price target of $58 a share.

The San Francisco-based device maker maintained 21 percent of the wearables market in July, according to a Morgan Stanley survey, despite competition from Apple Inc.’s gadget, which was introduced in April. The number of Fitbit users who planned to buy Apple’s watch fell from May to July, according to the bank’s survey. Apple’s device is a smartwatch, offering capabilities such as e-mail and other apps that aren’t available for the so-called basic wearable gadget that Fitbit makes.

Fitbit executives have said they don’t believe that their business has been hurt by the Apple Watch because their products focus on consumers specifically concerned with health and fitness. Bill Zerella, the device-maker’s chief financial officer, said last month that the company may triple spending on research and development this year and will reveal new products next year.

Fitbit, which dominates the market for bands that track health data, last month reported second-quarter revenue that more than tripled from a year earlier to $400.4 million.

Before it's here, it's on the Bloomberg Terminal. LEARN MORE