RBC says this gym stock is worth buying and can rally more than 20%

Published Fri, May 19 20237:12 AM EDTUpdated Fri, May 19 202312:14 PM EDT

Expected earnings growth for Planet Fitness make the stock a smart buy while off highs, according to RBC. Analyst Christopher Carril initiated coverage of the gym stock at outperform. His price target of $86 implies an upside of 23.4% from Thursday's close. "We see PLNT's model as attractive in a still-uncertain macro," he said in a note to clients Friday. Carril said the company's model of about 90% franchises is part of the reason there's steady and compounding growth because it means there's predictable sources of revenue such as franchise fees and royalties and corporate store membership dues. He said to expect earnings per share to grow about 37% this year, followed by an annual rate around 20%. EBITDA, meanwhile, should show growth in the mid-to-high teens percentage-wise. The stock has fallen about 20% off highs seen earlier this year, a pullback Carril called "overstated." He noted the dip provides an attractive opportunity for investors to buy in. PLNT YTD mountain Planet Fitness, year-to-date Looking ahead, Carril said the company should see growth in the mid-teens on the top line due to strong same-store sales. He said to expect 9% same-store sales growth in 2023. One key driver of top-line growth is the upside from membership dues, he said, with premium-priced memberships accounting for about 60% of the total. Planet Fitness can also get a boost from advertising, which accounts for 9% of sales compared with 4% at competitors, he said. Carril also pointed to the high school summer pass program , which could deliver a sustained addition of around 600,000 memberships per year. He said that could translate to enough traffic to support between 65 and 100 new gyms annually over time. He noted the price target is based on a multiple of 18x 2024 EBITDA of around $515 million. While Carril said that's at a premium compared with other active and healthy living-focused stocks and more in line with best-in-class franchise restaurant companies, he said the higher multiple is warranted given expectations for future earnings growth. — CNBC's Michael Bloom contributed to this report.