Lyft shares rose sharply Monday, one day ahead of the company’s fourth-quarter earnings report, after Northcoast Research analyst John Healy raised his rating on the ride-sharing company’s stock to Buy from Neutral, setting a price target of $60.
Among other things, he thinks Lyft (ticker: LYFT) could be a potential acquisition target.
Healy writes in a research note that his upgrade reflects three primary factors. One, he notes that Uber’s stronger-than-expected results for the quarter “provides us more confidence that competitive dynamics and unit economics of the ride business are sound.” Two, he says survey work suggests “[market] share momentum” at Lyft. And three, he thinks Lyft could be an acquisition target for autonomous-vehicle developers.
Healy notes that Uber both beat estimates for the quarter ended in December and pulled in the timeline for reaching profitability. He also says that checks on ride-hailing conditions “suggest a backdrop that was healthy at the margin with no meaningful slowdown.” And he asserts that “from our perspective, demand was more firm at Lyft compared to Uber.”
As for the potential that Lyft could be acquired, he is skeptical that consumers are going to get the chance to buy autonomous cars any time soon, given “uncertainties regarding insurance, compliance, and security.” Ergo, he thinks the first forms of autonomous technology “will be monetized in more of a network or public transportation model.” And he concludes that “a pure play network such as Lyft could be increasingly attractive from an M&A standpoint to the future winners of the autonomous race.”
Healy notes that the stock is off to a good start in 2020, rallying more than 20% year to date. But he sees more upside.
“While the company has highlighted that 2019 would mark the peak investment year along with a profitability goal by the end of 2021, we believe progress and execution towards these goals will make the shares work higher,” he writes. “Additionally, we see current valuation as attractive given the growth rate of the business and execution on this path to profitability.”
Wall Street analyst consensus calls for Lyft to post revenue of $984.2 million, with a loss of $1.36 a share, for the quarter ended in December. For the current quarter ending in March, consensus is $1.05 billion in revenue and a loss of $1.25 a share.
Lyft shares jumped 7.6% on Monday, to $53.72. The Dow Jones Industrial Average rose 0.5%.
Write to Eric J. Savitz at eric.savitz@barrons.com
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February 11, 2020 at 04:16AM
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Buy Lyft Stock Because the Company Could Be an Acquisition Target, Analyst Says - Barron's
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