Planet Fitness stock price target boosted on strong business outlook

On Wednesday, BMO Capital Markets adjusted their outlook on shares of Planet Fitness (NYSE:PLNT), increasing the price target on the company's shares to $87.00 from the previous $80.00, while maintaining an Outperform rating. The adjustment comes after a review of the company's second quarter performance, which indicated positive trends in several key financial metrics.

The second quarter for Planet Fitness showed notable improvements in Franchise and Equipment revenue, as well as in EBITDA and membership growth. This performance comes in the context of concerns over potential member churn, which the company appears to be effectively managing. The introduction of new Classic Card pricing is expected to provide further benefits by reducing churn rates.

BMO Capital Markets highlighted the potential for increased penetration of Planet Fitness's Black Card memberships or the possibility of implementing higher pricing for these premium services. The firm remains optimistic about the fitness chain's prospects, citing the strong underlying business as a driver for long-term value creation.

The analyst's commentary suggests that Planet Fitness's strategies are well-positioned to capitalize on market opportunities. "With new Classic Card pricing in place, we'd expect to see a benefit to churn, while upping Black Card penetration and/or allowing for higher Black Card pricing," the analyst noted, emphasizing the company's strengths. "We continue to expect PLNT's strong underlying business will drive long-term value, representing a compelling compounder. Reiterate Outperform. Target price to $87."

Investors and market watchers will be observing how Planet Fitness's strategic pricing and membership initiatives impact its financial growth and market position in the coming quarters. The company's ability to sustain and build upon its second quarter achievements will be crucial in meeting the expectations set by the revised price target.

In other recent news, Planet Fitness has reported a robust second quarter, with a 4.2% rise in same-store sales and expansion to over 2,600 stores. The company's adjusted EBITDA grew by 7.2%, and it has returned over $1.3 billion to shareholders via share repurchases.

CEO Colleen Keating emphasized a commitment to franchisee profit, driving franchisor profit, and outlined a new growth model to enhance store returns. The company also completed a significant debt refinancing, upsizing from $600 million to $800 million due to favorable rates.

In addition to financial highlights, Planet Fitness also shared its 2024 outlook, including targets for new store openings, equipment placements, and same-store sales growth. The company announced plans to hire a Chief Development Officer and a Chief Marketing Officer to support its growth.

Marketing efforts, informed by current brand work, will begin in late 2024 and into Q1 of 2025, focusing on attracting the 80% of Americans without gym memberships.

However, the company noted that the timing of equipment replacement and promotions could affect the adjusted EBITDA outlook. Some stores may experience a 6-month extension for ADA compliance due to delays beyond franchisees' control. Despite these challenges, Planet Fitness' resilience and business model make it an attractive tenant, leveraging retail space availability and bankruptcies to open new clubs.

InvestingPro Insights

As Planet Fitness (NYSE:PLNT) continues to demonstrate financial resilience and strategic growth, insights from InvestingPro reveal several key metrics that may interest investors. With a market capitalization of $6.77 billion, the company's valuation is underpinned by a robust gross profit margin of 62.6% for the last twelve months as of Q2 2024. This impressive margin is indicative of the company's efficient cost management and strong pricing power.

InvestingPro Tips highlight that Planet Fitness is currently trading at a high earnings multiple, with a P/E ratio of 39.56, reflecting a premium valuation relative to near-term earnings growth. However, it's worth noting that analysts predict the company will be profitable this year, and it has been profitable over the last twelve months. Moreover, the company's liquid assets exceed its short-term obligations, suggesting financial stability and the ability to handle near-term liabilities.

For investors seeking more in-depth analysis, there are additional InvestingPro Tips available at https://www.investing.com/pro/PLNT, which delve into the company's performance and valuation metrics. As Planet Fitness approaches its next earnings date on November 7, 2024, these insights can help investors make informed decisions about the company's growth trajectory and potential investment opportunities.

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