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FitBit 2Q17 preview and more CTL ?3

13:01 25-Jul-17


FitBit has scheduled its 2Q17 report to take place after the bell on August 2nd.  The average of analyst estimates comes to a loss of 15 cents per share on revenue of $341M, with the current quarter increasing to $393M. 

Comparing guidance to that latter figure is likely to have the biggest impact on immediate market movements, but I will be looking at the balance sheet and how much FitBit is spending in developing its general purpose wearable.  That's where the demand is, and my channel checks show that Garmin is having quite a bit of success in this area.  GRMN is too pricey for my tastes, but the company will be reporting that morning, so stay tuned for some possible last-minute notes.  Either way, any color that FitBit management can provide on time to market will also be important, and no news is bad news for this report.  I continue to think that FitBit can field a compelling product.  However, it is under the gun, and I would be remiss not to reiterate how dangerous this report could be.

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I plan to prioritize the FitBit call over CenturyLink's, and those who are tired of me flogging the CTL opportunity can stop reading now.  That said, I was asked if the proposed merger restrictions on the Democrat's Better Deal initiative change my views on CTL.  The answer is no.  While some good points are made, particularly about lack of broadband competition in the U.S., what we've seen so far is pure political theater in the ramp towards mid-terms.  It's uncertain that anything meaningful will ever come from such press-releases and CenturyLink's merger should be complete long beforehand anyway. 

In the meantime I am looking at options expiration on Aug 18.  The bulk of open interest is in the $23 calls, with some significant positions for each of the few dollar-strike increments above that.  CTL remains out of favor and thus the 32M shares at stake is not a huge amount.  Nonetheless, this is the sort of situation that Big Money likes to play games with.  Look for continued media and price pressure through mid-month, and a possible rebound in stock price after expiration. 

We'll also want to watch the progress of the AT&T/Time Warner deal.  Both the administration's moves since taking office and recent news indicate success to me.  Although the details are rather different from CenturyLink + Level 3, it's still hard to imagine that larger less popular deal could go through and the smaller, more sensible one would not, especially given the amount of government business that CenturyLink does.  When I first added CTL to the pick list back in March, I indicated that this was a high-yield income story that would play out over the remainder of the year.  However, if management affirms the Sept. 30 merger completion schedule, this could be the last of our buying opportunities.