This fitness stock is a buy as sales momentum is set to continue, Stifel says

Stifel upgraded Planet Fitness to a buy rating with a price target of $120, suggesting a 15% upside, citing stabilized gross joins and potential catalysts for mid-to-high single-digit comparable sales growth over the next few years. The analyst highlighted improved marketing efforts, the potential to increase Black Card membership pricing, and promising avenues to improve the Black Card Spa offerings with new services like spray tanning and cryotherapy. Additionally, the company's low-cost model and potential inclusion of gym memberships in Health Savings Accounts are expected to contribute to its resilience and growth.

Analysis

Stifel has upgraded Planet Fitness (PLNT) shares to buy from hold, raising its price target to $120 from $82, implying a potential 15% upside from the recent closing price. This analyst action follows a 10% rally in PLNT's stock this month, which occurred after the company reaffirmed its full-year guidance for earnings per share, revenue, and system-wide same club sales growth. The Stifel analyst, Chris O’Cull, highlights that recent results indicate a stabilization in gross member joins and projects mid-to-high single-digit comparable sales growth for the next couple of years. Key drivers for this optimism include improved marketing efforts, which emphasize Planet Fitness's value as an affordable and non-judgmental gym, with O'Cull noting considerable runway for further improvement. Additionally, net new unit growth is expected to see steady improvement due to strong top-line performance and ongoing efforts to reduce investment costs. A significant catalyst identified is the company's plan to increase its Black Card monthly membership price from $24.99 to $29.99 later this year. Furthermore, Planet Fitness is testing upgrades to its Black Card Spa, incorporating services like spray tanning, red light therapy, and cryotherapy, which are reportedly yielding positive results and could provide new incentives for membership. The analyst also underscores the resilience of Planet Fitness's low-cost model in the event of a consumer spending downturn and notes the potential positive impact from efforts to include gym membership costs under Health Savings Accounts, which could drive broader industry growth.

Key Decisions for Investors

• Investors should evaluate Planet Fitness in light of Stifel's upgraded buy rating and $120 price target, considering the identified catalysts such as stabilized member joins and anticipated comparable sales growth.
• Monitor the company's execution on increasing Black Card membership pricing and the rollout of enhanced spa services, as these are flagged as significant potential drivers for revenue and member appeal.
• Consider the defensive characteristics of Planet Fitness's low-cost business model, particularly its potential resilience during economic downturns, and assess the ongoing effectiveness of its improved marketing strategies.
• Watch for developments regarding the inclusion of gym memberships in Health Savings Accounts, as this could provide a material tailwind for customer acquisition across the fitness sector and benefit Planet Fitness.