Analyst On Planet Fitness: Time To Take A 'Breather' After A 'Great Run'

Planet Fitness Inc PLNT priced its 2015 initial public offering at $16 per share and investors who held the stock for years may want to consider taking a "breather," according to Imperial Capital.

The Analyst

Imperial Capital's George Kelly downgraded Planet Fitness from Outperform to In-Line, with a price target lifted from $38 to $40.

The Thesis

Kelly's bullish stance on Planet Fitness dates back to April 2016 and since then shares have gained 185 percent, the analyst said in a note. As such, the stock is now "fully valued" and it would be difficult to justify the case for incremental material upside from current levels.

Planet Fitness' growth over the past few years in part benefited from several one-timers, Kelly said. For example, a mid-2017 price increase and new GAAP rules that forces the company to consolidate the National Advertising Fund, which boosted revenue growth in 2018. Accordingly, revenue growth in 2019 will likely "revert to more normalized" levels.

Planet Fitness is likely to take advantage of the "muted" competition, but Kelly said this may not be the case indefinitely. There are multiple chains worth monitoring, which could create a more intensified competitive environment, such as Blink, Chuze Fitness and Crunch.

Bottom line, Planet Fitness' stock is in no way "un-attractive" but the long-term return potential isn't sufficiently large enough to warrant an Outperform rating.

Price Action

Shares of Planet Fitness were trading lower by nearly 3 percent early Friday morning after closing at $40.90.

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