Why Morgan Stanley Likes Planet Fitness As Reopening Play

Gyms are a unique investment angle on the economic reopening, and one analyst gave investors the green light to buy Planet Fitness Inc PLNT on Tuesday.

The Planet Fitness Analyst: Morgan Stanley analyst Brian Harbour initiated coverage of Planet Fitness with an Overweight rating and $93 price target.

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The Planet Fitness Takeaways: Planet Fitness shares traded higher by 5% after Harbour said he is projecting high single-digit unit growth for in 2022 and 2023 and a return to pre-pandemic margins.

Planet Fitness was a pioneer of the high-volume, low-cost fitness club membership model, and 95% of its locations are franchised, the analyst said.

The stock has lagged the market so far in 2021 due in large part to investor concerns about the delta variant of COVID-19 and the potential for more shutdowns. Yet Harbour said he sees evidence that Planet Fitness is well-positioned to recover and gain market share as the economy gets back to normal over time.

“PLNT's franchise model underpins a return to growth and pre-Covid margins, with operating model replicability, ~45% pre-royalty margins (pre-Covid), +25% cash-on-cash returns, low labor intensity, and little exposure to commodity inflation,” he said in the initiation note.

Planet Fitness has reported club memberships and gym usage are already back to 90% of pre-pandemic levels. While a small number of customers may temporarily continue to avoid gyms, Harbour said digital at-home fitness equipment users don’t represent a high percentage of value fitness customers.

Morgan Stanley is projecting Planet Fitness will open around 100 units in 2021 before returning to at least 200 unit openings annually in 2022 and 2023.

Benzinga’s Take: Planet Fitness shares doubled off their March 2020 lows by the end of 2020, but the reopening rally has stalled out so far in 2021. The stock may be an attractive opportunity for investors who feel they have missed the boat on many of the top performing reopening stocks this year.