On Friday, BMO Capital maintained an Outperform rating on Planet Fitness (NYSE: NYSE:PLNT) and increased the price target to $100 from $87. The adjustment follows the company's robust third-quarter earnings, which stood out amid widespread investor concerns prior to the earnings release. These concerns primarily focused on the company's unit growth, membership numbers, and Black Card price testing.
The analyst at BMO Capital highlighted the fitness chain's substantial third-quarter performance, emphasizing that the results surpassed expectations during a period of uncertainty. Despite apprehensions about various aspects of Planet Fitness's business model, the company managed to deliver impressive outcomes, which the analyst believes will fuel long-term value for the company.
According to the analyst, the strength of Planet Fitness's underlying business is expected to continue driving its value forward. The firm's confidence in the fitness company's prospects is reflected in the reiterated Outperform rating, suggesting that Planet Fitness is well-positioned for future growth.
The new price target of $100 is based on approximately 34 times the company's projected fiscal year 2025 earnings. This target indicates a significant level of confidence in Planet Fitness's ability to grow and expand, which BMO Capital anticipates will make it an attractive investment as a "compelling compounder."
In other related news, Planet Fitness has reported a positive third quarter, with a 4.3% increase in same-club sales and a 10% rise in adjusted EBITDA. The company's revenue grew by 5.3%, reaching $292.2 million, and ended the quarter with approximately 19.6 million members.
The company also raised the classic membership price to $15 for new members and engaged nearly 3 million students through the High School Summer Pass program. Planet Fitness has set a target of 5,000 clubs in the U.S., with plans of expanding into international markets. Additionally, more than 1,700 clubs are expected to add more strength equipment by the end of 2024.
Looking forward, the company anticipates a revenue growth of 8% to 9% for 2024, with same-club sales growth expectations tightened to 4% to 5%. However, it remains cautious about raising membership prices to maintain long-term relationships with members.
Planet Fitness is optimistic about new club openings, with an uptick expected in Q4, facilitated by over 6,000 retail store closures.
InvestingPro Insights
Planet Fitness's recent performance aligns with BMO Capital's optimistic outlook, as reflected in InvestingPro data. The company's impressive gross profit margin of 60.33% for the last twelve months as of Q3 2024 underscores its operational efficiency, supporting the analyst's view of a strong underlying business. This is further emphasized by an InvestingPro Tip highlighting the company's "impressive gross profit margins."
The market seems to share this positive sentiment, with Planet Fitness trading near its 52-week high, as indicated by another InvestingPro Tip. The stock's robust performance is evident in its significant 52.26% price return over the past six months and a 53% return over the last year, aligning with BMO Capital's increased price target and "compelling compounder" designation.
However, investors should note that the stock's P/E ratio of 50.99 suggests a high valuation, which could be justified by the company's growth prospects but also indicates high market expectations. For a more comprehensive analysis, InvestingPro offers 18 additional tips for Planet Fitness, providing deeper insights into the company's financial health and market position.
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