Planet Fitness Inc (NYSE: PLNT) was initially rejected by investors following its 2015 initial public offering, but could be a compelling stock within the active lifestyle segment with over 1,400 locations, according to DA Davidson.
DA Davidson's Andrew Burns initiated coverage of Planet Fitness' stock with a Buy rating and $42 price target in 12-18 months and a five-year price target of $57.
The fitness company offers consumers a "high value" experience at $10 a month throughout its network of 1,400 stores, Burns said in the initiation note. But over the longer term, Burns said the company can grow its store count to over 4,000 locations and simultaneously improve its operating metrics and significantly expand its margins given its "best-in-class franchise concept."
Planet Fitness also boasts a high-margin franchise model that requires minimal capital from the company, the analyst said. This business model will likely generate a cumulative free cash flow in excess of $270 million in 2018 and 2019, which gives management an opportunity to not only reduce its debt profile but pay investors dividends, acquire other companies and even invest in an international expansion, according to DA Davidson.
Finally, based on management's own targets of opening 200 new stores per year, investors should expect a double-digit organic growth rate and high-teens earnings growth along with a potential valuation multiple expansion.
Shares of Planet Fitness hit a new 52-week high of $31.23 and were trading higher by more than 2 percent.
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Latest Ratings for PLNT
|Feb 2018||Bank of America||Maintains||Buy||Buy|
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Planet Fitness, Inc.
Questionable Business Strategy with Unachievable Revenue Goals: The fitness industry is intensely competitive, subjecting Planet to the whim of changing consumer preferences (yoga, boot camp, barre burn, adventure courses), potential technology disruption from wearables, and rife with examples of chains that over-expanded and failed (e.g. Bally Total Fitness, Curves, Town Sports). Planet Fitness (“Planet” or “PLNT”) tries to differentiate itself with a “no judgment” model for the casual fitness user that doesn’t want to be “gymtimidated,” at no-commitment, and a low entry price of $10/month (plus initiation fees). On average, its clubs have 6,500 members, and it needs both densely populated markets and members who won’t use its gyms to make its financial model work! Furthermore, we believe Planet’s revenue targets and growth rate are unrealistic and likely to disappoint current expectations. Download our research report to learn more…