Leveraging Membership Growth And New Ventures For A Thriving Future In The Fitness Industry

Key Takeaways

• Strategic club takeovers, new openings, and in-center service expansion aim to drive revenue growth and higher membership margins.
  
• New branded products and effective leverage management could enhance earnings and enable potential stock buybacks, boosting earnings growth.
  
• Reliance on sale-leaseback for cash flow, risks in new club deals, and challenges in customer retention and supplement business could impact financial performance.

Catalysts

Provides health, fitness, and wellness experiences to a community of individual members in the United States and Canada.

• Life Time Group Holdings plans to continue leveraging strong membership growth and member retention rates, which should drive higher revenue and potentially better membership-related margins in the future.
  
• The company is exploring significant growth opportunities through strategic club takeovers and new club openings, expected to foster incremental revenue and favorable ROI in the coming years.
  
• Life Time's expansion of in-center revenue through enhanced personal training, spa, and other services is set to increase revenue per member and overall in-center margins.
  
• The upcoming rollout of Life Time Health (LTH) branded products and MIORA could provide new revenue streams with potentially higher margins, contributing to overall earnings growth.
  
• Life Time's commitment to managing leverage while expecting to generate significant free cash flow positions it well for future investment and potential stock buybacks, which could drive EPS growth.

Life Time Group Holdings Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Life Time Group Holdings's revenue will grow by 10.6% annually over the next 3 years.
• Analysts assume that profit margins will increase from 5.7% today to 8.2% in 3 years time.
• Analysts expect earnings to reach $278.4 million (and earnings per share of $1.32) by about November 2027, up from $142.8 million today. However, there is some disagreement amongst the analysts with the more bearish ones expecting earnings as low as $219.6 million.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 28.0x on those 2027 earnings, down from 35.6x today. This future PE is greater than the current PE for the US Hospitality industry at 24.4x.
• Analysts expect the number of shares outstanding to grow by 0.58% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 9.33%, as per the Simply Wall St company report.

Life Time Group Holdings Future Earnings Per Share Growth

Risks

• The company's reliance on sale-leaseback transactions to generate cash flow, while effective in the short term, could be risky if real estate market conditions change, potentially impacting future free cash flow and leveraging.
  
• There is an inherent risk in the pipeline of 100 deals for new clubs, including challenges in execution and time delays, which could affect anticipated revenue growth from these new ventures.
  
• The significant emphasis on high retention rates to drive financial performance rests on continued customer satisfaction, which could be challenged by market competition or changes in consumer preferences, potentially impacting revenue.
  
• The expectation for the supplement business to become a significant revenue stream assumes successful brand loyalty and market penetration in a competitive market, which is uncertain and could impact earnings projections.
  
• Increasing membership or pricing strategies at high-performing clubs could alienate existing members, particularly if done poorly, affecting the retention rate and consequently revenue stability.

Valuation

• The analysts have a consensus price target of $28.42 for Life Time Group Holdings based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $33.0, and the most bearish reporting a price target of just $22.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2027, revenues will be $3.4 billion, earnings will come to $278.4 million, and it would be trading on a PE ratio of 28.0x, assuming you use a discount rate of 9.3%.
• Given the current share price of $24.57, the analyst's price target of $28.42 is 13.5% higher.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.