Cowen upgrades Planet Fitness on projected member growth and gym openings

Published Tue, Dec 14 20217:47 AM ESTUpdated Tue, Dec 14 20212:28 PM EST

Cowen on Tuesday upgraded shares of Planet Fitness , predicting the health club chain will see member growth and gym openings next year. "PLNT is poised for strong new member growth and openings to accelerate ... with pre-pandemic highs in sight," Cowen's Max Rakhlenko said. "PLNT has one of the most compelling flywheels that yields sustainable share gains and should only accelerate coming out of the pandemic." Cowen raised its rating on Planet Fitness to outperform from market perform. The firm also raised its price target to $100 per share from $92. The new projection implies 17% upside from Monday's close. Shares rose 1% in premarket trading Tuesday. The firm predicts Planet Fitness will gain at least 1.1 million new members in the first quarter of 2022 and add at least 200 gyms during the year. A large and growing advertising fund will help drive member growth and gym openings, according to Cowen. The firm predicts the advertising fund will reach about $285 million in fiscal year 2022. "Growing ad fund and industry dislocation should accelerate the flywheel and yield ongoing share growth, pricing power, and ability to reach 4,000-plus gyms," Rakhlenko said. Demographic trends also signal sustained growth at Planet Fitness, according to the firm. Gen Z and millennial consumers make up 60% of Planet Fitness members, with only 50% of the Gen Z demographic old enough to join a gym, Cowen noted. "PLNT sits at the intersection of powerful secular shifts, which support attractive long-term growth. PLNT is positioned to benefit from demographic shifts as younger cohorts appear to be more health and wellness conscious than older generations," Rakhlenko said. Plus, a recent pullback in Planet Fitness' share price creates an "attractive entry point" for investors, Cowen said. The stock closed Monday more than 14% off its 52-week high notched in November. Shares of Planet Fitness are underperforming the market this year, up 10% compared with the S & P 500's 24% gain. —CNBC's Michael Bloom contributed reporting.

A customer wears a face mask as they lift weights while working out inside a Planet Fitness gym as the location reopens after being closed due to the Covid-19 pandemic, on March 16, 2021 in Inglewood, California.

Patrick T. Fallon | AFP | Getty Images

Cowen on Tuesday upgraded shares of Planet Fitness, predicting the health club chain will see member growth and gym openings next year.