On Friday, BofA Securities adjusted its outlook on Planet Fitness (NYSE:PLNT), increasing the price target to $100.00 from the previous $95.00 and maintaining a Buy rating on the stock. The revision comes with an optimistic view on the gym chain's financial prospects, particularly its return to pre-pandemic performance levels.
The firm expects new Planet Fitness units, established after the company's classic card price increase on June 28, to achieve 4-wall EBITDA margins of approximately 38-40% and cash on cash returns around 30%. These figures are anticipated to align with the performance before the COVID-19 pandemic, potentially driving a resurgence to over 200 new clubs by 2025.
The 50% hike in the price of Planet Fitness's classic card is also seen as a positive move. It is believed to improve legacy member retention and increase black card penetration, based on pilot results. This strategy is projected to enhance returns for new units and lead to a low single-digit to mid-single-digit percentage increase in average unit volumes (AUVs) at existing units by July 1, 2025.
BofA Securities also notes the benefits from Planet Fitness's new growth model, which began to take effect in the second quarter. This model includes a double-digit percentage decrease in the cost of equipment packages and a 10% reduction in the cost to build new units, attributed to changes like no initial fee and a smaller front desk area. These changes are seen as instrumental in supporting a return to pre-COVID level returns.
Tracking of Planet Fitness's website indicates that there are currently 33 clubs in the pre-grand opening sale phase, with Texas, California, and Mexico being the three largest regions. Importantly, foot traffic data through August shows no significant slowdown since the price increase, suggesting robust customer engagement.
In conclusion, BofA Securities reaffirms its Buy rating on Planet Fitness and raises its price objective to $100, based on an enterprise value (EV) of 19-20 times the projected 2025 adjusted EBITDA of $527 million. This valuation is more consistent with Planet Fitness's historical multiples when the company was expanding at a rate of over 200 new clubs per year.
In other recent news, Planet Fitness has been the focus of several analysts. Exane BNP Paribas (OTC:BNPQY) upgraded Planet Fitness stock to Outperform and raised the price target to $97.00, noting the strategic approach of the new CEO, Colleen Keating. The firm expects a reacceleration in store openings for Planet Fitness heading into 2025 and 2026 and anticipates that adjustments to pricing could enhance Year 2 EBITDA by 25%.
Baird reaffirmed its Outperform rating on Planet Fitness, maintaining a price target of $92.00. The firm highlighted Planet Fitness's robust value proposition for consumers and its profitable franchise model. Baird also designated Planet Fitness as a "Bullish Fresh Pick" through the end of the year.
DA Davidson raised its price target on Planet Fitness to $70.00 following a second-quarter earnings beat. The firm increased its second-half 2024 earnings per share (EPS) estimate by $0.05, reflecting expected revenue growth from stronger same-store sales.
BMO Capital Markets increased its price target for Planet Fitness to $87.00, citing the potential for increased penetration of Planet Fitness's Black Card memberships and the possibility of implementing higher pricing for these premium services.
Finally, RBC Capital raised its price target for Planet Fitness to $87, maintaining an Outperform rating. The firm cited greater confidence in the company's potential for accelerated growth in the 2025 fiscal year, despite the challenges posed by higher construction costs.
InvestingPro Insights
As Planet Fitness (NYSE:PLNT) continues to make strides towards its pre-pandemic performance levels, real-time data from InvestingPro offers additional context for investors considering the stock. The company boasts a robust gross profit margin of 59.89% in the last twelve months as of Q2 2024, underscoring its operational efficiency and ability to manage costs effectively. This aligns with the positive outlook provided by BofA Securities, as higher margins can contribute to the anticipated improvements in 4-wall EBITDA margins and cash on cash returns for new Planet Fitness units.
Moreover, Planet Fitness has demonstrated strong returns, with a 35.83% increase in its 1-year price total return, reflecting investor confidence and the stock's growth potential. This metric is particularly relevant given BofA Securities' raised price target and the company's aggressive expansion plans. With the stock trading near its 52-week high at 99.03% of its peak, the market sentiment appears to be in line with BofA's bullish stance.
While the company's P/E ratio stands at 45.37, indicating a high earnings multiple, it is essential for investors to consider this in the context of the company's growth trajectory and the InvestingPro Tips. For instance, Planet Fitness's liquid assets exceed its short-term obligations, which can provide financial flexibility and support its expansion strategy. For those looking for more in-depth analysis, there are over 10 additional InvestingPro Tips available, which can offer further insights into the company's financial health and market position.
Overall, the InvestingPro data supports the optimistic view presented by BofA Securities, with strong profitability and an aggressive growth strategy that could see the company's stock continue to perform well in the market.
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