Why The Selloff In Planet Fitness Is Disconnected From Strong Fundamentals

Planet Fitness Inc PLNT shares have been on a retreat since March. In a note released Monday, Baird said the selloff appears disconnected from strong fundamentals. The firm addressed a few topics that explains the disconnect.

Not Concerned About Deferred Revenue

Analysts Jonathan Komp and Peter Benedict said they are not at all concerned about the slight dip in deferred revenue in 2016, given that a major proportion of the reported deferred revenue can be affected by factors not linked to current fundamentals. The analysts believe the metric may have grown, excluding the impact of acquisitions.

"Also, the deferred revenue for new units in the pipeline under signed Area Development Agreements was only down slightly ($10.026 million vs. $10.471 million) implying PLNT was able to re-fill ~three-fourths of the ~190+ units opened during the year (a bullish sign)," the analysts added.

Insider Selling Woes

The firm sees any short-term trading pressure arising out of insider selling to be temporary. According to the firm, CEO Chris Rondeau, despite triggering questions with his frequency of sales, has maintained most of his ownership intact.

Franchise Leadership Update

Baird noted that Planet Fitness had posted a corporate opening for the role of chief development officer in Microsoft Corporation MSFT/LinkedIn and that it hired senior vice president of franchise operations Bill Bode in December.

The two positions combined, according to the firm, overlap with the responsibility of executive vice president of operations and development Brian Belmont. Therefore, the firm sees a likely future role change for Belmont, although not expecting Belmont to leave the Planet Fitness system altogether.

Unit Opening Tracking In Line

First-quarter unit opening of 1,369 at Planet Fitness is ahead of the consensus estimate. With another 28 in pre-sale, the firm said the combined units could track to 1,397 compared to its 1,399 second-quarter end consensus estimate.

Very Little Interest Rate Impact

The firm sees a negligible EPS impact of less than $0.003 per share since Planet Fitness' report in early March. This is especially so because the company has partially hedged its floating rate exposures.

Concluding, Baird said the company remains well positioned to deliver strong near-term results, as it does not see any fundamental drivers of stock's selloff. The firm also said the substantial white-space growth opportunity justifies a higher valuation.

Baird has an Outperform rating and a $28 price target on the shares of Planet Fitness.

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Fitbit's Rough Holiday _____ Image Credit: By Anthony92931 - Own work, CC BY-SA 3.0, via Wikimedia Commons