PLNT - Embedded Expectations Analysis - 2018 08 28
Planet Fitness, Inc. (PLNT:USA) currently trades at historical highs relative to UAFRS-based (Uniform) Earnings, with a 28.4x Uniform P/E. However, even at these levels, the market is pricing in expectations for Uniform ROA to remain near current 103%-106% levels through 2022. Although negative management sentiment suggests the potential for near-term headwinds, market expectations are overly bearish in the context of the firm's historical performance and strong fundamental tailwinds, implying long-term equity upside remains warrantedSpecifically, management may lack confidence in their ability to increase capital returns to shareholders through share repurchases and dividends. Additionally, they may have concerns about costs to refinance their debt with the new $1.2bn risk securitization facility, particularly related to the fixed interest rate of the $575mn of four-year notes. Furthermore, they may lack confidence in their ability to sustain elevated corporate store sales, and may be concerned about fading margins. Also, they may lack confidence in their ability to implement technological equipment upgrades in their franchises, and integrate wearable technology with their app
Although management's concerns about returning capital to shareholders, capital costs, and corporate store performance suggest the potential for near-term headwinds, market expectations for declining Uniform ROA still appear too bearish. As such, multiple expansion and equity upside continue to be warranted in the long-term
Planet Fitness is a holding company. Through its subsidiries, the company is engaged as a franchisor and operator of fitness centers. The company's stores include co-branded cardio equipment, free weights, strength machines, a workout area, a small retail area and a drink cooler. The company operates and manages its business in three business segments: Franchise, which includes operations related to its franchising business in the U.S., Puerto Rico, Canada, the Dominican Republic and Panama; Corporate-owned stores, which includes operations with respect to all corporate-owned stores throughout the U.S. and Canada; and Equipment, which includes the sale of equipment to franchisee-owned stores in the U.S.
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