On Tuesday, JPMorgan made a positive adjustment to its stance on Planet Fitness (NYSE:PLNT), upgrading the stock from Neutral to Overweight and raising the price target to $78.00, up from the previous $68.00. This change reflects a more optimistic outlook on the company's long-term growth potential.
The upgrade was based on a thorough analysis of Planet Fitness's business model, including an extension of financial projections through fiscal year 2027 and a review of the near to medium-term expectations. The firm also refreshed its franchise unit economics model and revisited total addressable market (TAM) assumptions.
JPMorgan's confidence in Planet Fitness has grown due to clear signs of improvement in franchise new unit economics, which are now estimated to be approximately 300-400 basis points below pre-Covid levels or showing a year-over-year improvement of 500-600 basis points. This is expected to support a more robust long-term development outlook, with projections of around 190 new stores being opened annually.
The anticipated increase in white card pricing to $15 from $10 for new members starting this summer is a significant factor in the firm's revised expectations. This pricing change, along with adjustments across both pricing tiers, is projected to be fully implemented by fiscal year 2027.
The healthier franchise system, combined with ongoing consolidation and appealing new unit economics, is expected to draw in larger and more well-capitalized sponsors, further bolstering the company's growth trajectory.
InvestingPro Insights
Following JPMorgan's optimistic upgrade of Planet Fitness, current data and insights from InvestingPro further enrich the investment narrative. The company boasts a strong gross profit margin of 62.35% for the last twelve months as of Q1 2024, underscoring the efficiency of its business model. This impressive margin aligns with the positive unit economics highlighted by JPMorgan. Additionally, analysts on InvestingPro have flagged that while some have revised earnings expectations downwards, the company is still trading at a low P/E ratio relative to near-term earnings growth, with a PEG ratio of just 0.98, suggesting that the stock might be undervalued given its growth prospects.
InvestingPro Tips also reveal that Planet Fitness has proven its ability to be profitable over the last twelve months, with a solid operating income margin of 27.4% and a return on assets of 5.33%. These metrics, combined with the fact that the company does not pay a dividend, suggest that it is reinvesting earnings back into the business to further fuel growth—a point that may interest growth-focused investors.
For readers looking to delve deeper into the financial health and future prospects of Planet Fitness, more InvestingPro Tips can be found at https://www.investing.com/pro/PLNT. There are currently 9 additional tips available, offering a more comprehensive picture. To access these insights, use the coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription.
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