Imperial Capital Initiates Town Sports With $3 Target

Imperial Capital’s George Kelly initiated coverage of Town Sports International Holdings, Inc. CLUB with an Outperform rating and price target of $3, reflecting 37 percent upside potential.

Upside Potential Despite Challenges

Kelly pointed out that the company has been facing various challenges over the past two years, such as internal issues that led to CEO departures, a rapidly changing market environment, turnover on the board and strategy changes.

“Despite these issues, and an 80 percent decline in the stock, core operating metrics have been resilient – membership levels and usage rates are at record highs, fewer than 15 of 160 clubs have closed, and property offerings and quality remain consistent,” Kelly mentioned.

Positive Financial Outlook

The analyst also noted that the business was beginning to stabilize, following the implementation of major cost reduction initiatives in 2H15. This cost reduction is expected to lead to operating resiliency, along with an improved EBITDA and free cash flow for Town Sports.

Although the company’s balance sheet is heavily leveraged, Kelly believes that Town Sports “will have options to address its debt service requirements” and that the company’s “debt structure gives it flexibility and time before needing to refinance in 2019 or 2020.”