On Wednesday, RBC Capital made adjustments to its outlook on Lyft Inc (NASDAQ:LYFT), reducing the price target to $17 from the previous $24, while maintaining an Outperform rating on the stock. The revision follows Lyft's recent financial performance, which presented a mixed picture for investors.
The company has been successful in organically driving down prices through operational improvements, which is expected to lead to increased ride volumes over time. Additionally, the concern that the insurance renewal would negatively impact EBITDA estimates this year has been alleviated. However, Lyft's recent earnings report indicated weaker than anticipated bookings guidance and a more evident loss of market share to its competitor, Uber (NYSE:UBER).
Lyft's third-quarter growth was slightly below its long-term compound annual growth rate (CAGR) target, although it was just above for the full year. This detail provides bears with more ammunition to argue that the company will miss its long-term targets. Consequently, RBC Capital has revised its estimates and price target downward, setting the new target at $17 but still endorsing the stock with an Outperform rating.
Despite the near-term disappointments, RBC Capital sees a silver lining in Lyft's ability to organically improve, leading to better pricing in the long term. The firm notes that Lyft's combined top and bottom line execution is showing year-over-year improvement. With solid mid-teens growth and significantly increasing EBITDA margins, including the results from today, the analyst believes that Lyft's stock is undervalued at 5 times its estimated 2025 enterprise value to EBITDA and 4 times its targeted 2027 free cash flow, discounted back at a 12% rate.
In other recent news, Lyft has been under analysts' scrutiny following its Q2 results and future growth projections. Truist Securities and Canaccord Genuity revised their price targets for Lyft, citing uncertainties about the company's long-term growth targets and Q3 guidance respectively. Despite this, Lyft's Q2 performance was solid, with gross bookings and profitability modestly surpassing expectations. The company also reported its first net profit, attributed to restructuring efforts and a thriving ride-share market.
In legal developments, the California Supreme Court maintained the classification of drivers as independent contractors, confirming the voter-approved Proposition 22. This decision is a significant win for ride-hailing services like Lyft. Lyft also announced the extension of its partnership with Payfare Inc. for the Lyft Direct program, a financial service for Lyft drivers.
In corporate news, Lyft announced the upcoming departure of Kristin Sverchek, the company's President, effective August 20, 2024. Sverchek will continue to serve as an advisor until November 30, 2024. TD Cowen reaffirmed its Hold rating on Lyft shares, projecting a 35.4% year-over-year revenue growth for Q2 2024. These are the recent developments in Lyft's journey.
InvestingPro Insights
As Lyft Inc (NASDAQ:LYFT) navigates through its current financial landscape, recent data from InvestingPro provides a deeper look into the company's performance and market position. With a market capitalization of $3.66 billion, Lyft's stock price volatility has been notably high, as reflected by a steep decline of over 33% in the past three months. Despite the volatility, analysts remain optimistic about Lyft's potential for sales growth and profitability in the current year, reinforcing RBC Capital's Outperform rating.
InvestingPro Tips highlight that Lyft holds more cash than debt, suggesting a relatively strong balance sheet. However, the company's short-term obligations exceed its liquid assets, indicating potential liquidity concerns. On the brighter side, Lyft's net income is expected to grow this year, with analysts predicting the company will turn profitable within the year. This aligns with RBC Capital's positive outlook on Lyft's pricing improvement and long-term growth.
From the InvestingPro data, Lyft's revenue growth stands at 10.9% over the last twelve months as of Q1 2024, with a quarterly increase of 27.65%, demonstrating the company's ability to expand its top line. Yet, Lyft's current Price/Book multiple of 9.01 indicates a premium valuation, which investors might weigh against the company's growth prospects and RBC Capital's revised price target of $17.
For those interested in further analysis, InvestingPro offers additional tips on Lyft, providing a comprehensive understanding of the company’s financial health and future outlook. Access to these insights can be found at: https://www.investing.com/pro/LYFT.
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