PLNT - Embedded Expectations Analysis - 2018 11 28
Planet Fitness (PLNT:USA) currently trades above historical averages relative toUAFRS-based (Uniform) Earnings, with a 27.0x Uniform P/E. However, even at these levels, the market is pricing in expectations for Uniform ROA to slightly fade from current levels. 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, suggesting long-term equity upside remains warranted
Specifically, management may be concerned about their falling franchise and other fees revenue, and may lack confidence in their ability to improve their attrition rate. Additionally, they may lack confidence in their ability to further improve their Black Card penetration, and may be concerned about the effectiveness of Black Card pricing increases. Moreover, they may be concerned about the number of stores that have amended their existing franchise agreements to increase their royalty rate instead of paying commissions, and about new GAAP rules related to how they report NAF contributions
Although management has concerns about franchise agreements, their Black Card program, and attrition rate suggest the potential for near-term headwinds, market expectations for Uniform ROA compression 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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