Lyft stock was stuck in neutral Tuesday despite netting several bullish ratings from the brokerage arms of its Wall Street underwriters.
The back story. Lyft stock (ticker: LYFT) has hit its share of potholes since its IPO in March. Lyft was the first in a wave of tech unicorns—privately held companies valued at $1 billion or more—set to go public this year.
Early excitement lifted the stock into the upper $80s, above its $72 IPO price. But concerns about the company’s path to profitability and its prospects versus its larger competitor, Uber, dragged the stock as low as $56.11 earlier this month.
Uber plans to go public in May, and could seek a valuation of more than $100 billion. It brought in $11.3 billion in revenue last year and reported lower losses compared with 2017. Lyft, meanwhile, had revenue of $2.2 billion in 2018.
Lyft stock has recovered some of its value in the last week, closing at $60.94 per share on Monday.
What’s new. There might be hope still for Lyft. Analysts at more than nine of the firms that underwrote Lyft’s IPO initiated coverage with mostly Buy or equivalent ratings. Underwriters must wait 25 days before initiating coverage, and it’s no surprise they see upside in the stock.
JPMorgan initiated coverage with an Overweight rating. Credit Suisse, JMP Securities, Raymond James, and Cowen similarly pegged Lyft as Outperform. UBS, Canaccord Genuity, Stifel, and Jefferies all had Buy ratings. KeyBanc was the only one that had a neutral stance, with a Sector Weight rating.
Out those 10 firms, the average price target was $80.70 per share. Two were below $70, and seven were above $80.
Investors didn’t appear swayed by the upbeat ratings. Lyft stock fell about 2.2% on Tuesday morning. It regained ground to trade up about 0.3% by midday, to $61.11 per share, while the broader S&P 500 was up about 0.8%.
Looking ahead. JPMorgan analyst Doug Anmuth set a $82 price target, writing in a note to clients that the ride-hailing industry has room to grow. He said Lyft’s leadership and strategy will help it become profitable as the industry becomes “more rational over time.”
He projected Lyft will have a break-even earnings before interest, taxes, depreciation, and amortization margin, or EBITDA, and positive free cash flow in 2022. He added that the industry will likely see a long-term EBITDA margin of 20% a few years after that.
KeyBanc analyst Andy Hargreaves wrote in a note to clients that fair value for Lyft is $67 per share. He noted that Lyft does have a “unique and valuable” strategic position, but added that the cost gap between owned cars and ride-hailing “suggests that a significant portion of its profit potential” will not be unlocked until the industry can operate without drivers, “likely several years away.”
“In the meantime, we expect steady deceleration in market growth and Lyft’s pace of share gain, which seems likely to prevent revenue and adjusted EBITDA from meaningfully exceeding our expectations,” he wrote.
As several analysts noted, Uber’s upcoming IPO roadshow will likely put pressure on Lyft stock as investors begin to compare both company’s data points. That, along with uncertainty of Lyft’s path to profitability, reinforces Barron’s view that potential Lyft investors should keep to the curb for the time being.