On Monday, DA Davidson, a financial services firm, adjusted its outlook on Planet Fitness (NYSE: NYSE:PLNT), increasing the stock's price target to $87.00 from the previous $70.00, while keeping a Neutral rating on the shares. The stock, currently trading at $99.55, has shown remarkable momentum with a 56.43% gain over the past six months.
According to InvestingPro analysis, the company is currently trading above its Fair Value, with multiple valuation metrics suggesting premium pricing. The revision follows Planet Fitness's third-quarter earnings report on November 7th, which surpassed expectations and led to an upward revision of the company's guidance for the year 2024.
The company's recent success has been partly attributed to a strong uptake by franchisees of a new program designed to purchase additional strength equipment. This initiative is expected to contribute approximately $20 million to Planet Fitness's revenue in the fourth quarter of 2024. With impressive gross margins of 60.33% and a healthy current ratio of 1.94, Planet Fitness plans to balance the financial gain with strategic corporate investments. For deeper insights into Planet Fitness's financial health and growth prospects, InvestingPro subscribers can access 15+ additional ProTips and comprehensive valuation metrics.
As a result of these developments, DA Davidson has increased its revenue forecast for the fourth quarter of 2024 but has decided to keep its earnings per share (EPS) estimate steady at $0.60. The firm is also introducing an EPS estimate for the year 2026 and has adjusted the target price-to-earnings (P/E) ratio for Planet Fitness to 26 times, up from the previous multiple of 24 times.
The raised P/E ratio is reflective of enhanced visibility into the company's top-line growth, particularly considering the impact of Planet Fitness's decision to increase its monthly membership fee to $15, up from $10. The stock currently trades at a P/E ratio of 53.51x, significantly higher than DA Davidson's projected multiple. The new price target of $87 is based on this revised 26 times P/E multiple applied to the firm's projected 2026 EPS of $3.35.
In other recent news, Planet Fitness has reported a robust third-quarter performance, exceeding expectations with a 5.3% increase in revenue to $292.2 million and ending the quarter with approximately 19.6 million members. The company also noted a 4.3% increase in same-club sales and a 10% rise in adjusted EBITDA. This positive performance has led to DA Davidson maintaining a Neutral stance on the company, while BMO (TSX:BMO) Capital has reiterated an Outperform rating.
The company's strategic initiatives are also gaining traction, with an initiative to encourage franchisees to purchase additional strength equipment expected to contribute approximately $20 million to the fourth-quarter revenue for 2024. Despite this anticipated revenue boost, the earnings per share (EPS) estimate remains unchanged at $0.60.
In response to these developments, both DA Davidson and BMO Capital have increased their price targets for Planet Fitness, reflecting greater confidence in the company's revenue prospects. DA Davidson has raised the target from $70.00 to $87.00, while BMO Capital has increased it from $87 to $100.
Lastly, Planet Fitness has announced plans for expansion, setting a target of 5,000 clubs in the U.S. and exploring international markets. The company also expects to see an uptick in new club openings in the fourth quarter, facilitated by over 6,000 retail store closures.
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