It would be easy to discount Lyft (NASDAQ:LYFT) as a casualty of COVID-19; the still-ongoing lockdowns on pretty much every place one would take a Lyft ride to or from sort of limits the market's ultimate potential. However, with vaccines and therapeutic solutions to COVID-19 waiting in the wings, a chance for recovery may be coming along with it. That notion, and an upgrade at Piper Sandler, was enough to give Lyft roughly an extra 3% in pre-market trading at one point.
An All-Around Boost at Piper Sandler
The best part about the Piper Sandler upgrade was that it was comprehensive. Not only did the analyst upgrade the overall perception of the stock but also the price target. The analyst raised the rating from “neutral” to “overweight”, suggesting a buying opportunity in progress. Additionally, the analyst also bumped up Lyft's share price target, raising it from $39 per share to a hefty $61 per share. Given that the stock is currently trading at $46.10 as of this writing, such a raise isn't out of line.
As to the motivation behind this move, Piper Sandler analysts pointed to several factors. They started with the company's current valuation, which seemed like it had room to make gains, and moved on from there to cost-cutting strategies that seem to be putting less demand on current cash flow.
Moreover, Lyft has found ways to accommodate the current lockdown-packed reality. Much of Lyft's revenue these days comes from off-peak hour operations. Since many Lyft users no longer need a ride into work at 9 AM or a ride home at 5 PM, Lyft now tends to focus on people doing grocery shopping in the middle of the day, or getting rides to and from doctor's appointments. It's lost one major form of business, but seems to have found enough business elsewhere to continue its operations.
The Analysts Share the Optimism
While Piper Sandler's hike is good news for the company as a whole, it joins a larger litany of analysts expecting good things out of Lyft as a whole. Based on our latest research, the company is currently sitting at a consensus “buy” rating. The exact nature of the consensus has changed a bit over the last six months, but not by very much in any direction.
Six months ago, for example, the company had 12 “hold” ratings and 28 “buy” ratings. Today, the company is at 11 “hold” and 21 “buy”, which keeps the ratio fairly close. A month ago, by way of comparison, the company was at 11 “hold” and 22 “buy”, showing how little the variance actually is. Consensus price targets have been likewise steady; six months ago, the target was $48.53. A month ago, $44.44. Now, it sits at $47.89. Interestingly, these targets haven't changed much, but the percentage upside has been wildly varied. That $48.53 six months ago represented almost 31% upside. Today, that $47.89 represents a shade over 1% upside.
Markets are Where You Find Them
As noted previously, Lyft has been eagerly moving into new and comparatively different territory; where before, it made the bulk of its cash ferrying workers to and from the office and ferrying the overindulgent home from bars and nightclubs, now it makes its money shuttling people to doctors and on grocery runs. Fair enough; a run is a run regardless of its pickup and drop-off points. It also helps Lyft out because it can pay drivers less for off-peak runs, though how long that will last if behaviors continue to shift and just produce new rush hours is unclear at best.
However, Lyft has been working to insulate itself from any bad press over the “we pay workers less” concept. It's already been spotted working with the Colorado Department of Transportation on a new holiday-related enforcement campaign for DUIs, including offering the carrot of free rides over the holidays, assuming people will actually be able to leave their houses by New Year's.
Better yet, an overall rising tide may lift Lyft's boat, among competitors' like Uber (NYSE:UBER). A new report out from Orbis Research suggests that the compound annual growth rate (CAGR) for the transportation-as-a-service market—of which Lyft is decidedly part—is set to reach its highest point by 2026. That puts Lyft's best days ahead of it, which contributes nicely to the “buy in” dynamic seen in the analyst community.
While things aren't looking great for Lyft right now, it's easy to see a much brighter future ahead. Buying in on Lyft now may well position investors for bigger gains down the road, while Lyft readies the systems and practices required to take fullest advantage of the brighter future to come.
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