UBS initiates coverage on fitness stocks as consumers increasingly prioritize health and wellness

UBS has initiated coverage on fitness stocks, assigning 'Buy' ratings to Planet Fitness (PLNT) and Life Time (LTH) due to their scalable, asset-light business models and strong growth outlooks, projecting significant EBITDA upside for PLNT to a $125 price target and favorable risk/reward for LTH to $43. Conversely, Xponential Fitness (XPOF) and Modern Golf (MODG) received 'Neutral' ratings, with UBS citing potential growth risks for XPOF (price target $8) and an unclear growth path for MODG's golf business (price target $10). This sector focus is driven by a significant increase in consumer prioritization of health and wellness, particularly among Gen Z, which UBS believes favors companies with affordable or premium holistic offerings and digital integration.

Analysis

UBS has initiated coverage on the fitness sector, driven by a significant increase in consumer prioritization of health and wellness, with 82% of US consumers now considering it a top priority, up from 50% in 2022. The firm favors companies with asset-light, scalable business models offering either affordable or premium holistic health options, integrated with digital platforms. This thematic focus underpins their differentiated ratings across the sector.

Planet Fitness (PLNT) received a 'Buy' rating with a $125 price target, reflecting its scalable model and projected EBITDA upside of $208 million to $245 million by 2027, significantly above market implications. UBS anticipates 12% to 13% EBITDA growth through 2027, citing catalysts like Black Card price increases and an asset-light shift in Spain. Life Time (LTH) also received a 'Buy' rating and a $43 price target, with analysts noting its premium positioning and potential for EBITDA growth from ramping clubs, new openings, and pricing improvements to exceed current market expectations.

Conversely, Xponential Fitness (XPOF) was assigned a 'Neutral' rating and an $8 price target due to potential risks to its 10% net unit growth guidance for 2026-2027, with anticipated flattish revenues in 2026 following a projected -6% to -7% decline in 2025. Modern Golf (MODG) also received a 'Neutral' rating and a $10 price target, facing an uncertain growth outlook for its golf business and challenging same-store growth for Topgolf. These ratings reflect UBS's concerns about their respective growth trajectories and business model challenges.

Key Decisions for Investors

• Investors should consider increasing exposure to asset-light, scalable fitness models like PLNT and LTH, given their strong growth outlooks and potential for EBITDA outperformance as highlighted by UBS.
• Maintain a cautious stance on XPOF and MODG, as UBS identifies significant growth risks, potential revenue declines, and an unclear path to future expansion for these companies.
• Monitor consumer health and wellness spending trends, particularly among Gen Z, as this demographic shift is a key driver for the sector's long-term growth potential.