Baird reaffirms outperform on Planet Fitness stock, labels it a Bullish Fresh Pick

On Monday, Baird reaffirmed its positive stance on Planet Fitness (NYSE:PLNT), maintaining an Outperform rating with a consistent price target of $92.00. The firm highlighted Planet Fitness as a compelling investment option in a period of decelerating economic growth.

The fitness chain's new leadership has been recognized for addressing economic challenges at the unit level, setting the stage for potential growth drivers, particularly through enhanced marketing efforts anticipated to take effect by 2025.

According to Baird, Planet Fitness's robust value proposition for consumers and its profitable franchise model are likely to demonstrate resilience against the backdrop of a challenging macroeconomic environment. The firm suggests that the potential for lower interest rates and decreased building costs could fuel investor confidence in a resurgence of unit growth following the year 2024.

The current valuation of Planet Fitness shares, trading at 17.2 times the next twelve months' enterprise value to EBITDA (earnings before interest, taxes, depreciation, and amortization), reflects a 6% discount compared to the median of its franchised peers. This valuation is seen as an attractive entry point for investors, as per Baird's analysis.

Baird's reiteration of the Outperform rating is underpinned by the belief that multiple factors, including the company's strong business model and strategic marketing initiatives, will align to drive performance in the coming years. The firm's designation of Planet Fitness as a "Bullish Fresh Pick" through the end of the year further underscores its confidence in the stock's potential.

In other recent news, Planet Fitness reported a surprising Q2 earnings beat, attributed to an anticipated shift in equipment sales. DA Davidson responded by raising its price target for the fitness chain to $70, maintaining a neutral rating. The firm also revised its second-half 2024 earnings per share (EPS) estimate upwards by $0.05, reflecting expected revenue growth from stronger same-store sales.

Furthermore, BMO Capital Markets also increased its price target for Planet Fitness to $87, following a review of the company's positive Q2 performance. The firm highlighted the potential for increased penetration of Planet Fitness's Black Card memberships and the possibility of implementing higher pricing for these premium services.

Meanwhile, RBC Capital has 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.

Planet Fitness also announced positive developments in its Q2 earnings call, reporting a 4.2% increase in same-store sales and an expansion to over 2,600 stores. The company's adjusted EBITDA saw a 7.2% rise, and over $1.3 billion was returned to shareholders through share repurchases.

Finally, Planet Fitness CEO, Colleen Keating, shared a new growth model aimed at enhancing store returns and emphasized the importance of franchisee profit. Plans to hire a Chief Development Officer and a Chief Marketing Officer were also announced to support growth.

InvestingPro Insights

InvestingPro data sheds further light on Planet Fitness's (NYSE:PLNT) market performance and financial health. With a market capitalization of $6.86 billion and a high P/E ratio of 44.3, the company is trading at a premium compared to some of its competitors. This high earnings multiple signals that investors may expect significant growth or have a strong belief in the company's future prospects. In the last twelve months as of Q2 2024, Planet Fitness has demonstrated a solid gross profit margin of nearly 60%, reflecting the efficiency of its business operations and its ability to maintain profitability despite economic headwinds.

Additionally, the company's revenue has grown by 6.85% over the same period, indicating a steady increase in its financial performance. This growth is coupled with an impressive return on assets of 5.58%, which suggests that Planet Fitness is effectively utilizing its assets to generate earnings. For investors looking to delve deeper into the company's financials and future outlook, InvestingPro offers a comprehensive suite of additional InvestingPro Tips, with 11 analysts having revised their earnings downwards for the upcoming period, indicating potential shifts in market expectations. For those interested in exploring further, there are 12 more InvestingPro Tips available at https://www.investing.com/pro/PLNT, providing valuable insights into Planet Fitness's financial trends and investment potential.

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