Stifel cuts Xponential Fitness stock rating to hold, target to $12

On Friday, Stifel analysts downgraded Xponential Fitness Inc (NYSE: XPOF) stock from Buy to Hold and significantly reduced the price target to $12 from $20. The downgrade followed the revelation of deeper-than-expected operational challenges within the company, which have led to a financial restatement. According to InvestingPro data, the stock has fallen significantly over the past three months, though analysis suggests it may be undervalued at current levels.

Stifel’s decision was influenced by the discovery of poor processes and insufficient resources that were not fully anticipated. The analysts acknowledged that while they expected the need for upgrades in infrastructure and a shift towards a more marketing- and operations-focused culture, the extent of the issues was underestimated. Despite these challenges, the company maintains impressive gross profit margins of 66.6% and generated revenue of $326.7 million in the last twelve months.

The financial restatement has raised concerns over the company’s ability to produce accurate financial reporting, which Stifel emphasized as a critical and non-negotiable element. Additionally, the company’s difficulties in projecting nearly every aspect of the business have made it challenging for analysts to underwrite the 2025 financial outlook.

Despite the new CEO and his team’s efforts to implement the necessary changes and drive improvement, the risks associated with the company are still considered to outweigh the potential rewards. This uncertainty has led Stifel to adopt a more cautious stance, opting to move to the sidelines until there is more clarity on the company’s trajectory.

Stifel’s analysis reflects a significant shift in confidence, suggesting that Xponential Fitness Inc faces a critical period of restructuring and stabilization before investor sentiment can potentially improve.

In other recent news, Xponential Fitness reported a significant earnings miss for Q4 2024, with an earnings per share (EPS) of -$0.19, falling short of the forecasted $0.38. However, the company’s revenue slightly exceeded expectations, coming in at $83.2 million compared to the anticipated $81.42 million. Despite the revenue beat, Xponential Fitness faced challenges, reporting a net loss of $62.5 million for the quarter. For the full year, the company achieved a modest revenue growth of 1% year-over-year, reaching $320.3 million. On the operational front, Xponential Fitness plans to open 200-220 new studios globally in 2025, focusing on franchisee profitability with a target EBITDA margin of 20-25%. Additionally, the company is dealing with the aftermath of restating its 2023 financial statements due to accounting errors. Analyst firms have yet to upgrade or downgrade the stock following these developments, but the company is focused on building a stronger foundation for future growth.

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