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 as much as 16% in intraday trading Friday and are on track to close at 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. Wall Street is generally bullish on the company, with 90% 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.
“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,” Baird analysts led by Jonathan Komp wrote in a note.
Komp trimmed his price target on shares to $65 from $87 but maintained his outperform rating.
“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,” he said. Planet Fitness shares have shed about 34% 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.
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Analysts at D.A. Davidson, who hold the only 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.