Following a quiet period after the company’s initial public offering, several Wall Street analysts started coverage of Lyft (LYFT) with buy-equivalent ratings, citing its large and global marketplace, few competitors and compelling valuation following recent underperformance. Lyft's IPO took place on March 29, when the stock started trading at $72. The shares have since pulled back and closed on Monday at just shy of $61, down more than 15% from its IPO price.
BUY LYFT: In a research note to investors, Piper Jaffray analyst Michael Olson initiated coverage of Lyft with an Overweight rating and a $78 price target. The analyst believes Lyft will be both a driver and beneficiary of the growth of ridesharing and autonomous technology over the next 10-plus years, and recommends investors with a "long-term view, and patience" own the stock. Olson noted that he expects "solid" near-term top line results from Lyft. The company has been gaining market share in recent quarters, "but the path to significantly positive net income will be a multi-year journey," he argued, adding that one of the most significant changes in the lives of humans over the next fifty years will be tied to transportation, and this change will built on a foundation of vehicle electrification, autonomous proliferation and multi-modal networks.
His peer at JPMorgan also started Lyft with an Overweight rating and $82 price target, as analyst Doug Anmuth pointed out that Lyft is a "scaled, high-growth" multimodal transportation network operating a core consumer ridesharing marketplace with expanding options across bikes and scooters, public transit, and ultimately autonomous vehicles. The analyst believes secular growth toward transportation-as-a-Service supports Lyft's projected 32% annual revenue through 2021. Ridesharing will be profitable as the industry scales and becomes more rational over time, he contended.
Also initiating Lyft with an Outperform rating and a $78 price target, JMP Securities analyst Ronald Josey argued that the ridesharing market is increasingly becoming a duopoly and said he believes Lyft can continue to grow faster than the market while acting "more rationally" with marketing, promotions, and incentives. Further, Josey sees near-term upside from new products and services, such as bikes and scooters, and longer-term from autonomous vehicles. Voicing a similar opinion, UBS analyst Eric Sheridan started coverage of Lyft with a Buy rating and $82 price target, and said he sees the company as one of two players attempting to utilize the shared economy model as a means to disrupt the North American transportation market. Lift has "all the positive facets of a multi-sided marketplace" as it capitalizes on scaling riders, scaling drivers, and autonomous driving, Sheridan contended, adding that he sees a market with a "long runway for secular growth."
Highlighting Lyft's "outsized" and durable 39% share in a ridesharing duopoly with Uber (UBER), Jefferies analyst Brent Thill initiated the stock with a Buy rating and $86 price target as the post-IPO slide in the stock has driven valuation to the bottom fifth of its peer group despite growth that is in the top fifth of the group. Further, the analyst sees "plenty of runway left" given that the market is only 1% penetrated in terms of miles driven.
Stifel, Canaccord, Cowen, Raymond James and Credit Suisse also initiated coverage of Lyft with buy-equivalent ratings.
STAYING ON THE SIDELINES: Not as bullish in the near-term, KeyBanc analyst Andy Hargreaves started coverage of Lyft with a Sector Weight rating. While the analyst acknowledged that Lyft holds a "unique and valuable strategic position" in North American ride-sharing, he believes the large cost gap between owned cars and ride-sharing suggests that a significant portion of its profit potential will be unlocked only after the driver is removed, which likely remains several years away. In the meantime, Hargreaves expects steady deceleration in market growth and Lyft's pace of share gain, which seems likely to prevent revenue and adjusted EBITDA from meaningfully exceeding his expectations.
PRICE ACTION: In morning trading, shares of Lyft have dropped 1.6% to $59.94.