Fossil: Zacks’ Bear of the Day Play

Fossil Group, Inc. (FOSLAnalyst Report) has struggled as consumers have turned away from traditional watches towards wearables. This Zacks Rank #5 (Strong Sell) is expected to see sliding earnings in both 2015 and 2016.

Fossil makes watches and fashion accessories, including jewelry and handbags, under its own brand as well as licensed brands.

Its products are sold to department stores, specialty retail stores and watch and jewelry stores in the US and 150 other countries worldwide.

It also sells in over 600 company-owned retail stores and through its own website, fossil.com.

Push Into the Wearables Market

With traditional watch sales falling, Fossil has been quickly trying to expand into the hot wearables market.

On Dec 29, it completed the acquisition of Misfit, Inc. for $236 million. Misfit makes wearable products sold at various retailers.

It already has the cloud and app platforms in place so Fossil can step right into this space with an experienced engineering team in place.

On Jan 5, at the Consumer Electronics Show in Las Vegas, Fossil announced that it would launch more than 100 styles of wearables in 2016 for a variety of its brands.

It expects to launch them under both the Misfit and Fossil brands throughout the year. The wearables will range from activity trackers to smart watches.

Will It Be Enough?

Will the push into wearables boost analyst sentiment?

So far, the answer is “no.” 6 estimates for next year have moved lower in just the last 60 days.

Earnings are expected to fall 38.7% this year but there’s no recovery forecast for 2016. Earnings are projected to fall another 19% to $3.52 from $4.35 in 2015.

The 2016 estimates have sharply declined in just the last 90 days.

Shares at 5-Year Lows

Shares plunged in 2015 and, so far, in 2016, haven’t shown any signs of stabilizing.

Fossil is now trading with a forward P/E of 9.3. While that seems cheap, investors should be careful. It’s unclear whether the push into wearables will be successful.

If you really want to invest in the wearables space, you should consider Apple (AAPLAnalyst Report) instead. It’s also cheap, with a forward P/E of 10.3, but is expected to have earnings growth this year and next.

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Tracey Ryniec is the Value Stock Strategist for Zacks.com. She is also the Editor of the Insider Traderand Value Investor services. You can follow her on twitter at @TraceyRyniec and she also hosts theZacks Market Edge Podcast on iTunes.

 

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