DA Davidson Gets Pumped About Planet Fitness, Initiates With Buy

Planet Fitness Inc PLNT was initially rejected by investors following its 2015 initial public offering, but could be a compelling stock within the active lifestyle segment with over 1,400 locations, according to DA Davidson.

The Analyst

DA Davidson's Andrew Burns initiated coverage of Planet Fitness' stock with a Buy rating and $42 price target in 12-18 months and a five-year price target of $57.

The Thesis

The fitness company offers consumers a "high value" experience at $10 a month throughout its network of 1,400 stores, Burns said in the initiation note. But over the longer term, Burns said the company can grow its store count to over 4,000 locations and simultaneously improve its operating metrics and significantly expand its margins given its "best-in-class franchise concept."

Planet Fitness also boasts a high-margin franchise model that requires minimal capital from the company, the analyst said. This business model will likely generate a cumulative free cash flow in excess of $270 million in 2018 and 2019, which gives management an opportunity to not only reduce its debt profile but pay investors dividends, acquire other companies and even invest in an international expansion, according to DA Davidson. 

Finally, based on management's own targets of opening 200 new stores per year, investors should expect a double-digit organic growth rate and high-teens earnings growth along with a potential valuation multiple expansion.

Price Action

Shares of Planet Fitness hit a new 52-week high of $31.23 and were trading higher by more than 2 percent.

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