Xponential Fitness Thrives On Solid License Sales And Unit Openings: Morgan Stanley

Morgan Stanley analyst Brian Harbour reiterated an Overweight rating on Xponential Fitness, Inc. XPOF, with a price target of $32.

The analyst applauds the company's solid record of license sales and unit openings, which has generally led to beats on revenue and EBITDA. 

Responding to a short-seller report, XPOF recently released a statement reiterating the business's strength and its franchisees' health. The company operates a diversified platform of ten brands spanning various verticals.

Harbour thinks that brand partnerships have contributed to the financial outperformance of the company over the last two years. 

However, the analyst thinks that not all brands operating under XPOF would be winners, but the company's full unit potential with the current portfolio was more of a bull case.

Using the franchise disclosure documents, the analyst thinks it's clear that a large group of studios is a sub-$300k accumulated unit value (acknowledging that some may still have been on their recovery path during the 2022 timeframe measured, and one can reasonably track the improvement in SSS and AUVs recently).

The analyst thinks the blended AUV number reported has recently benefitted from a mix shift toward higher volume brands. 

The analyst notes that the lower volume brands have already been the smaller and slower growing ones, as was visible in 2022.

Price Action: XPOF shares are trading higher by 3.44% to $17.72 on the last check Thursday.