Analysts have highlighted a buying opportunity in shares of Lyft Inc (NASDAQ:LYFT) driven by multiple catalysts paired with overly negative sentiment, creating a favorable risk-reward setup.
What To Know: Gordon Haskett upgraded Lyft from Hold to Buy on Wednesday, citing increased driver availability, improving conversion rates and continued rideshare adoption.
The analyst firm initiated Lyft with a Hold rating last year on expectations the company would underperform competitor Uber Technologies Inc (NYSE:UBER).
"While we continue to see Lyft as disadvantaged relative to Uber, we believe the combination of (1) Lyft’s material share price underperformance and relative valuation discount to Uber, (2) overly negative investor sentiment ... and (3) multiple catalysts create a favorable risk/reward dynamic," Gordon Haskett analysts wrote in a note to clients.
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The first catalyst the analyst firm highlighted is an improving national driver supply. Gordon Haskett said Lyft saw a 30-second sequential improvement in wait times quarter-over-quarter, as well as pricing improvements, citing proprietary data.
The analysts at Gordon Haskett also pointed out that conversion rates are improving. In a blog post from last week, Lyft noted that its rideshare conversion rate is "the highest it has been in several years." Conversions measure the percentage of ride intents that converted to actual rides taken.
Gordon Haskett has also been noticing continued shared ride adoption. Management has said that shared rides have driven increased frequency and helped expand access to price sensitive customers. Moreover, Lyft is gaining traction among price sensitive customers in lower-income areas, the firm said.
Lyft's new upfront payment capabilities should also help attract and retain new drivers. Gordon Haskett said approximately 80% of surveyed drivers approved of the new pay model. Furthermore, as employees return to offices, rideshare demand is expected to increase.
Related Link: Lyft Tests Upfront Pay After Uber; Sees No Immediate Impact From Latest Labor Law
"While we believe Lyft warrants a lower valuation multiple relative to Uber, the current valuation gap is far too wide," Gordon Haskett analysts said.
Given the company's material underperformance relative to Uber, the analysts noted that Lyft could be a "prime activist target."
Gordon Haskett has a $24 price target on shares of Lyft, indicating the firm expects the stock to double.
LYFT Price Action: Lyft has a 52-week high of $46.64 and a 52-week low of $10.82.
The stock was up 5.59% at $11.09 in Wednesday's session, according to Benzinga Pro.
Photo: courtesy of Lyft.
