Research

We Attach Research on Planet Fitness Directly to the Key Drivers in an Interactive Strategic Model

View above about Issue: Planet Fitness Equity Price

We excerpt from stories about an investment opportunity to support judgments about the key drivers of the odds of upsides & downsides to that investment's future returns. We discipline ourselves to express explicit odds for key drivers that are usually discussed only qualitatively, such as the odds that Planet Fitness becomes the One & Only alternative for its current members, achieving leading churn & profitability.
Analysis

From Our Research, Our Model Produces Odds of Many Scenarios for Long-Term Cashflow

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With our judgments for key drivers, together we produce many scenarios for long-term cash flows. For example, we see a 50% chance this company will produce more than $22 billion of cash over the long-term, which it could do if it’s the One & Only alternative for its current members, One of a Few alternatives for members at 1,000 new gyms under contract with franchisees, and One of Many alternatives for other prospective members in its long-term plan. We see a 20% chance it makes more than 30 billion, which it could do by dominating its first 2 markets and being One of only a Few alternatives in the 3rd market. In the interactive chart below, drag the dot to 80% to see that case, or to anywhere else to see any of the other 99 cases whose odds are driven by our odds for their drivers informed by our research attached to those drivers. If reading a smartphone, flipping to landscape orientation will help.
Analysis

Our Model Even Produces Odds of Many Scenarios for Exit Multiples

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We can even produce scenarios for expectations for those long-term cash flows by other investors in the future, such as in 2 years, for example. Here we see 100 scenarios for those expectations for cash balance. Those expectations in 2 years influence multiple in 2 years, and our odds for those expectations enable us to handicap odds for multiples. We see a 90% chance EBITDA multiple is above Gym Group’s and a 50% chance it is above Basic Fit’s. We see a 10% chance it’s still above 25, and we can see investor expectations for Growth, Scale & Profitability that could motivate that. On the other hand, we can see investor expectations that would motivate a multiple below Gym Groups. In the bottom panel below, hover over some multiples dots to see those expectations. By estimating odds of those stories, we can estimate odds of exit multiples, which is much more useful than just looking at a wide range in a data table with no explicit odds for either end of the range.
Analysis

That Produces Odds for Investment Returns Over Multiple Future Horizons So We Can Decide Better Whether & How Much to Invest

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Our story-driven odds for investors’ outlook for Planet Fitness at various future horizons help us produce odds for its valuation at various future horizons. We see a 10% chance it is more than 2.5x today’s value in 5 years, which is an IRR of 20%. On the other hand, we see a 10% chance it is more than 40% below today’s value. If we had diversified investments like this in a portfolio, we would expect it to return the mean of about 1.5x over 5 years. These odds can help us weigh better whether and how much to invest in this company, and with what deal structure.
Analysis

Odds Expected by Investors at Year-End 2021 that Planet Fitness is the One & Only Fitness Center for Members at 1K New Locations vs. Planet Fitness Equity Value at Year-End 2021

Having Quantified Stories about Planet Fitness in these Scenarios for future return on it, we can get a quantified perspective on how much that return depends on investors’ outlook for specific drivers. For example, at year-end 2021, investors are likely to remain confident that Planet Fitness will be the dominant alternative for members at its new 1,000 locations under contract with franchisees, but if ongoing research suggests instead that they are likely to lose that confidence, then we might see much higher odds of serious downside to valuation. Below, drag the blue bars in the left chart to change the odds, and note the influence on the odds in the right chart, or vice versa. This quantitative confirmation of the importance of this expectation will motivate us to prioritize more research on it, which we will attach directly to our judgment for these odds in order to improve that judgment.
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Odds Expected by Investors at Year-End 2021 that Planet Fitness is the One & Only Fitness Center for Members at 1K New Locations

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Planet Fitness Equity Value at Year-End 2021

Research

Our Odds that Planet Fitness is One of Many Alternatives for its Current Members

Private-equity firm TPG is acquiring Crunch Fitness through its growth-equity unit. Started in New York’s East Village in 1989, Crunch owns and operates more than 300 fitness centers across the U.S., Canada, Australia and Spain. Crunch began franchising in 2010—a move that Mr. Rowley said was “monumental” to the company’s growth. The franchise model has propelled the chain’s growth domestically and internationally. Today, about 50 locations are corporate-owned and nearly 300 are franchised under 88 franchise owners.With TPG Growth, Crunch will continue to expand its footprint and offerings. Mr. Rowley said the gym operator has focused on upgrading the interior of its locations and providing exercise classes, carving out a niche in the premium segment of high-value, low-price health clubs. The HV/LP model refers to facilities that offer a variety of amenities at affordable prices. Crunch is among the latest health club chains to trade hands in a sector that has become a robust landscape of private-equity activity.
Research

Our Odds that Planet Fitness is the One & Only Alternative for Members at 1K New Locations

Planet Fitness, Inc. (NYSE: PLNT) today announced that it has opened its 2,000th location in Colorado Springs, Colorado on E. Woodmen Rd. on December 31st, 2019. The Company also opened its 2,001st store on December 31, 2019, bringing its 2019 total store openings to a record 261.
Research

Morgan Stanley's Best COVID-19 Scenario

View above about Issue: Odds that COVID-19 is contained by end of March

Scenario #1 – Containment by March: The virus outbreak is contained by end-March and production disruption is limited to the first quarter. Policymakers in China and Asia move to provide meaningful fiscal and monetary support, with China expanding its fiscal deficit by 1.2 percentage points, keeping it high for the second year running. Global growth dips to an annualized rate of 2.5% in the first quarter, down from 2.9% in the fourth quarter, 2019, but recovers meaningfully from the second quarter onward.
Research

Morgan Stanley's Medium COVID-19 Scenario

View above about Issue: Odds that COVID-19 disruption ends in the second quarter

Scenario #2 – Escalation in new geographies, disruption extends into the second quarter: In this scenario, new cases continue to rise in other parts of the world, before peaking by the end of May. The disruption extends into the second quarter, affecting corporate profitability in select sectors, risking the emergence of corporate credit risks. If the dislocations in asset markets also persist into the second quarter, a sharp tightening in financial conditions may mark a tipping point, exacerbating the impact on growth via weaker corporate confidence, falling capital expenditures and cutbacks in hiring. In response, policymakers around the world would step up easing measures, with fiscal policy in Asia and Europe and monetary policy in the U.S. doing the heavy lifting. Today, the Fed announced an unexpected half-point rate cut and our Chief U.S. Economist, Ellen Zentner, expects the Fed to cut rates again by a quarter-point at its April meeting, with the risk of an earlier action given the “fluidity” of the situation. In this scenario, global growth averages just 2.4% in the first half of 2020, but starts to pick up in the third quarter.
Research

Morgan Stanley's Worst Scenario

View above about Issue: Odds that COVID-19 disruption persists past the second quarter

Scenario #3 – Persisting into third quarter, escalating recession risks: The outbreak’s global disruption continues to spread into the third quarter, encompassing all the large economies. China faces a renewed rise in new cases as it restarts production. The extended disruption to economic activity damages corporate profitability and brings about a rise in corporate credit risks and significant tightening in financial conditions, which exacerbate the slowdown in global growth. Central banks will embark on a renewed easing cycle, with the potential for a coordinated response. In this scenario, we expect the global weighted average monetary policy rate to dip to its lowest level since 2012. The Fed would extend its cuts from March-June and could become more aggressive and take rates to close to the lower bound by the third quarter. The fiscal response across key developed and emerging economies also becomes more aggressive, with China taking up two percentage points of fiscal expansion. The cyclically adjusted primary fiscal deficit for China and the G4 nations (Brazil, Germany, India and Japan) widens to 5.1% of GDP in 2020, from 4.1% in 2019. Global growth stays weak (i.e., below 2.5%) between the first and third quarters.