Planet Fitness membership increase improves longer-term outlook (PLNT)

The higher cost of a new membership improves the longer-term growth trajectory for Planet Fitness (NYSE:PLNT) leading J.P. Morgan to upgrade the stock to Overweight from Neutral and raise their price target by 15% to $78, an 18% upside to Monday’s closing price.

“Changes to the new growth model including pricing across both tiers should be in full effect largely by F27 in addition to a relatively healthier franchise system, also as ongoing consolidation is matched with relatively robust new unit economic which should attract larger/well capitalized sponsors,” J.P. Morgan analyst Rahul Krotthapalli said in Tuesday’s research note.

Krotthapalli considers the period between FY20 and FY24 to be a “transition period” for Planet Fitness (PLNT) but with FY24 making the lasting changes to enhance recently pressured franchise economics. FY24 and beyond estimates are now de-risked from both a new unit and membership growth perspective to overcome lasting concerns about real estate availability and retail space constraints.

The bank’s research models for 150 new net store additions and 1.1M new members in FY24 but trims their FY25 and FY26 unit growth outlook to 155/170, respectively, from 160/180 previously.

“Our higher penetration rate expectation is based on the fact that management is now open to actively exploring new/smaller box formats that offer increased convenience and access to previously unaddressed trade areas, allowing to reach more potential members,” Krotthapalli said.

Analysts are split on Planet Fitness (PLNT) with SA authors viewing the stock as a Hold while Wall Street analysts give the stock a Buy rating. SA’s Quant Rating gives Planet Fitness (PLNT) a Hold rating.

Shares are up 4% in Tuesday’s premarket trading.