Planet Fitness Shares Up 21% in 3 Months: More Upside Left?

Planet Fitness, Inc.’s PLNT focus on digitalization, strategic partnerships and reopening plan bodes well. However, the coronavirus pandemic and high debt remain concerns. In the past three months, shares of the company have gained 21%, compared with the industry’s rally of 15.9%. 

Key Catalysts

In an effort to expand presence, Planet Fitness has been focusing on strategic partnerships and international expansions. Recently, the company collaborated with iFit — a leader in online streaming home workouts. This partnership will initiate a series of new workouts with minimal or no equipment, available to everyone exclusively on the Planet Fitness App. It will be available for both members and non-members free of cost. In January 2020, the company collaborated with Biggest Loser, thus expanding its reach to viewers interested in health and fitness.

Despite the coronavirus crisis, management indicated that several private-equity backed franchise groups have expressed interest in further investments in the Planet Fitness brand.

Planet Fitness has accelerated digital initiatives during the coronavirus-induced shutdowns. This includes daily workouts on Facebook Live that averaged 100,000 views per workout and subsequent postings on YouTube resulting in an increase of 229% in Planet’s YouTube subscriber base. This was driven by a wider audience of non-members. Notably, the company is also offering access to over 500 exercises on its app, which resulted in a 173% increase in average daily workouts on the app.

Following the closure of the company’s stores in March, the company implemented a reopening approach on May 1. As of Jun 1, the company has reopened 800 stores across 30 states and one province in Canada.

Concerns

Moreover, the company has withdrawn its previously issued guidance for 2020 due to the uncertainty and significant business impacts caused by COVID-19.

The company’s total debt increased to $1,908 million (as of Mar 31, 2020) from $1,840 million as of December end. Moreover, the company’s debt-to-capitalization of 156.1% is quite high compared with 42.1% for its industry. Notably, its times-interest-earned ratio of 3.3 reflects decline from 3.8 in the prior quarter. This indicates reduced relative freedom of the company from the constraints of debt. Moreover, the company ended first-quarter 2020 with cash and cash equivalents of $547.5 million, which is not enough to manage the high debt level.

Zacks Rank & Stocks to Consider

Planet Fitness, which shares space with Camping World Holdings, Inc. CWH, has a Zacks Rank #3 (Hold). 

Some better-ranked stocks worth considering in the leisure space include Madison Square Garden Sports Corp. MSGS and Studio City International Holdings Limited MSC. Both the stocks has a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Madison Square Garden Sports current quarter earnings are likely to witness growth of 50.5%.

Studio City International has a trailing four-quarter positive earnings surprise of 46.1%, on average.

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