Your Dollar Goes Further At Planet Fitness

• Planet Fitness Inc PLNT has seen a 4.88 percent increase in its share price through the month of August.
• Jerry Gray of Cowen and Company has initiated coverage of Planet Fitness with an Outperform rating and price target of $21.
• Grey believes that the company offers a strong value proposition, along with high quality store experience, which could drive meaningful market share gains.

According to the Cowen report, “Planet Fitness disrupted the $23B U.S. Health Club industry when the company launched its high-value, low-price business model, helping to create a fundamental shift in how consumers are spending their exercise dollars.”

See Also: NYSE Welcomes Planet Fitness

Grey expects the company’s unit growth and accretive margin mix shift to Franchise to drive 20 percent EPS CAGR by 2019. With a “judgement free” environment that attracts new gym users and high quality equipment offering an “enjoyable brand experience,” Planet Fitness has been able to capture market leading members, with 7.1 million members as of 1Q15.

“Much of this growth has been at the expense of mid-tier traditional gym concepts which continue to lose share,” Grey stated.

According to data from Cowen’s proprietary survey, the company’s “everyday appeal” has driven market share gains of 390 bps year-on-year, among respondents who are active gym members as of 1H15.

“The company should remain a beneficiary of increasing gym membership penetration as increased interest in health and wellness continues to drive new entrants into the fitness industry,” the report mentioned.

Grey also expects the company to benefit from its appeal across different demographics, with survey participants including people from households with less than $50,000 as income, as well as higher number of younger and female members than its competitors.

The US Health Club industry, while being worth $23 billion, is also highly fragmented, without a single player with market share of more than 5 percent and the top 10 competitors comprising only 22 percent of the total market share.

Planet Fitness has guided to long-term potential of 4,000 stores in the US, from 918 in 2014, with an additional 300 stores in Canada, implying an increase in market share from 2.3 percent in 2015 to 8.6 percent with 4,000 stores.

“PLNT's ability to attract those new to fitness and strong franchisee economics continue to support store growth,” Grey added.