Piper Sandler Says Lyft's 'Positive Developments' Justify 30% Upside Potential

Ride-hailing company Lyft Inc LYFT faces several "positive developments" that warrant a shift to a bullish stance on the stock, according to Piper Sandler.

The Lyft Analyst: Alexander Potter upgraded Lyft's stock from Neutral to Overweight with a price target lifted from $39 to $61.

The Lyft Thesis: Lyft deserves credit for figuring out how to better monetize its ride-hailing platform during the COVID-19 pandemic, Potter wrote in a note. Specifically, U.S. vehicle miles traveled (VMT) fell 28% year-over-year in the second quarter and 12% in the third quarter. Revenue fell at a much higher rate at 61% in the second quarter and 48% in the third quarter.

Potter said Lyft's revenue-per-thousand-VMT improved from 80 cents in the second quarter to 97 cents in the third quarter and management guided this metric to $1.14 in the fourth quarter. If a vaccine against the novel coronavirus is readily available by the summer months, the key metric is on track to return back to pre-COVIDlevels by the fourth quarter 2021.

Related Link: Uber, Lyft Secure $810M Federal Transportation Contract

Meanwhile, Lyft's focus on cost-cutting initiatives improved EBITDA despite falling revenue and its "frugality" is "on full display," the analyst wrote in the note. If management continues to focus on keeping costs low, there's further potential for"considerable upside" versus consensus estimates in 2022 and beyond.

These encouraging tailwinds imply Lyft's stock deserves a return back to its historical peak multiple of five times EV-to-revenue, or $61 a share.

LYFT Price Action: Shares of Lyft were trading higher by around 1% Monday morning at $46.56.