(Bloomberg) -- Planet Fitness Inc. sank after the company announced the immediate departure of its Chief Executive Officer Chris Rondeau, who’s held the position for more than a decade.
Shares fell 16% Friday to close at about $50 per share, the lowest level since 2020. The company said that Rondeau will remain a member of the board and will be nominated for reelection in 2024. Planet Fitness also appointed board member Craig R. Benson its interim CEO and has started a search for a permanent leader.
The change caught analysts off guard, leading one to cut its recommendation on the stock. Wall Street is generally bullish on the company, with more than 80% of those covering Planet Fitness giving it a buy-equivalent rating and the average target price seeing roughly 50% upside for shares, according to data compiled by Bloomberg.
Cowen downgraded Planet Fitness to market perform from outperform and cut its price target to $55 from $72, saying shares of the fitness industry leader are likely to remain under pressure until the company names a new CEO and updates its growth strategy.
“The departure increases uncertainty around franchise health, opening outlook, and competitive position,” analysts led by Max Rakhlenko wrote.
Baird analysts led by Jonathan Komp trimmed their price target on shares to $65 from $87 but maintained their outperform rating.
“We are surprised by today’s announcement, but also can see the rationale for the board to opportunistically transition to a more seasoned executive as PLNT addresses near-term challenges with lower unit economics,” Komp wrote in a note. “We suspect the board has made a difficult change following recent underperformance; the move raises several near-term uncertainties, though in our view not enough to ignore PLNT’s attractive valuation.”
Planet Fitness shares have shed 36% in 2023.
Stifel analysts agree that new leadership could be an opportunity for Planet Fitness to grow.
“While the timing of the announcement was surprising, we believe the leadership transition could set the stage for a faster pace of change, with certain elements of the model—such as raising the price of the Classic Membership package—potentially now on the table for consideration,” analysts led by Chris O’Cull wrote.
Read more: Planet Fitness Drops as 2023 Development Plan Rattles Investors
Analysts at D.A. Davidson, who also hold a neutral rating on shares, see the company lowering targets in the future.
“PLNT has already said it is re-evaluating its multi-year unit opening targets, and we think it is widely believed that they will lower the targets laid out at their analyst meeting on November 15, 2022,” analysts led by Linda Bolton Weiser wrote in a note.
The company has “presented multiple reasons why franchise unit openings have slowed, without giving investors confidence about what the growth rate is likely to be, which we think is the key factor that has impacted stock performance,” added Weiser, who has a $66 price target on shares.
Still, others remain positive on the fitness chain.
“While the leadership transition is unnerving, we continue to believe Planet is capable of healthy EPS growth even in a slower expansion scenario given its unique value-oriented, high-volume model and reiterate our Outperform rating,” William Blair analyst Sharon Zackfia wrote in note.
--With assistance from Katrina Compoli.
(Updates stock moves at market close. An earlier update added Cowen comment)
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Author: Carmen Reinicke