Raymond James Sees Opportunity In Lyft Sell-Off

LYFT Inc LYFT is trading down more than 16 percent off its March IPO price, offering what Raymond James considers an “attractive entry point.”

The Analyst 

Justin Patterson initiated coverage of Lyft with an Outperform rating and $85 price target.

The Thesis

By Patterson’s estimate, three factors work in Lyft’s favor. (See the analyst's track record here.) 

First, ride-sharing will change consumer behavior, and the evolving transportation industry will catalyze a decline in costs and rise in share of passenger miles, he said in a Tuesday initiation note. 

Second, the market can support not only multiple players, but multiple winners.

“Ridesharing is a natural duopoly where price, ETA and service quality dictate consumer choice,” Patterson said. “Much like Expedia Group Inc EXPE benefited from secular growth between 2011-2016, Lyft should benefit from the ridesharing tailwind.”

Third, profitability is achievable by increasing service frequency and leveraging fixed costs, the analyst said. 

“Given ridesharing is at [less than] 1% U.S. penetration, we believe revenue growth can sustain [about] 30% per annum over the medium term and that EBITDA margins can expand materially." 

Patterson forecast EBITDA margins above 20 percent with a revenue growth rate as fast as Booking Holdings Inc BKNG’s.

Still, Lyft has its risks. Widespread adoption of ride-hailing may take time, and competitors may emerge and seize market share. Additionally, operating losses could grow if revenue fails to accelerate, and Lyft may be forced to pursue a capital raise, according to Raymond James. 

Price Action

Lyft shares were down 1.19 percent at $60.21 at the time of publication Tuesday. 

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Photo courtesy of Lyft.