Imperial Capital Initiates Coverage On Town Sports International

Imperial Capital initiated coverage on Town Sports International Holdings, Inc. CLUB Wednesday with an In-Line rating and $7 price target.

Analyst John O’Neil noted that the price target represented a “6 percent potential upside from the recent closing price. While the overall fitness industry is growing, CLUB’s core business is suffering from increased competition from low priced clubs and from boutiques and studios, and management is in the early stages of transforming its pricing strategy to reverse declining membership trends.”

O’Neil added, “Prices have been cut by more than 50 percent at about one third of CLUB’s units, which are converting to a high-volume low-price (HVLP) model. In our opinion, the timing uncertainties surrounding the profit improvement in these clubs and the earnings risk at clubs that are not converting will limit earnings visibility into 2015.”

The analyst report concluded that “In addition to the revenue declines in non-HVLP clubs, there is the potential for management to alter pricing plans there too, which could further depress earnings in the short term. These factors keep us on the sidelines until there is better visibility for EBITDA stabilization across the club base.”

Town Sports recently traded at $6.71, up 1.2 percent.