What's Going On With Clear Secure Stock Monday?

Clear Secure Inc YOU stock is trading higher after Needham analyst Joshua Reilly reiterated its Buy recommendation with a $40 price target.

In his Bull/Bear series, the analyst flagged investor sentiment with quick bullet points on positive and negative viewpoints for individual companies based on investors on both sides of the proverbial aisle and his perspective on what could make the stock outperform or underperform.

The analyst maintained his optimistic view of the stock.

He believed growth is more sustainable than investors expect and profitability at scale will also surprise the upside. 

The key bull points included:
• Sustainability of the travel boom post-COVID-19.

• Large enough TAM to double subscribers over time.

• Attractive unit economics driving long-term FCF leverage

• TSA PreCheck providing a large base to cross-sell to Clear Plus

• Valuation reflecting fall-off in growth due to competition concerns, travel and American Express Company  AXP slowdown.

•  A profitable target model.

TSA-boarded passengers are exceeding the company's expectations as Americans are traveling in record numbers. While TSA boarded passenger growth has slowed year-to-date, the travel trends remained strong and exceeded investor expectations of a quarter ago. 

The analyst believed management's goal is to double the subscribers over the next several years to 10 million paying subs today versus the 5.5 million on average paying for the first quarter of 2023. Additionally, the analyst expected support that 10 million subscribers are bleedover from the 129 million U.S. adults who travel more than two times per year.

He finds Clear's unit economics impressive, most notably its LTV to CAC ratio of 17-19:1, which reflects the company's low-cost customer acquisition model and strong customer retention. 

The analyst estimated the LTV to CAC ratio to expand in C2023 due to higher net member retention and lower customer acquisition costs that reflect a surge in traffic flow through U.S. airports.

The result of solid unit economics is a long-term FCF margin that he expected to exceed 30%, but it can be in the 25%-30% range in the near term. 

The analyst believed the valuation of Clear Secure at 20x EV/FCF based on the FY23 consensus estimate discounts a slowdown in travel and Amex bookings. 

YOU Price Action: Clear Secure shares traded higher by 1.68% at $22.98 on the last check Monday.

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