Lyft is a ‘buy’ despite the slide in its share price after earnings and a regulatory overhang, 2 analysts say

john zimmer lyft
Lyft’s John Zimmer in New Orleans in 2018.

  • Lyft got some analyst support on Wednesday after earnings with two top Wall Street analysts reiterating their bullish stances.
  • CFRA’s Angelo Zino reiterated his “buy” rating and $75 price target citing improved pricing.
  • Wedbush’s Dan Ives reiterated his “overweight” rating and $85 price target citing a demand rebound.
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Lyft stock is a “buy” despite the slide in share prices after earnings, according to two top Wall Street analysts.

In a note to investors after Lyft reported earnings, Dan Ives of Wedbush Securities reiterated his “overweight” rating and $85 price target on shares of Lyft.

Similarly, CFRA Research’s Angelo Zino reiterated his “buy” rating and $75 price target.

Both analysts believe the market may be overreacting to regulatory overhang brought about by new pressure on the gig economy.

Lyft stock has been under fire since US labor secretary Marty Walsh said “we are looking at it, but in a lot of cases gig workers should be classified as employees,” in an interview with Reuters last Thursday.

Rideshare services like Lyft and Uber, among a slew of other companies, rely on gig workers’ independent contractor status to reduce labor costs.

On Wednesday things got even worse for Lyft after the Biden administration announced it would end the Trump administration’s “Independent Contractor” rule, which limited the ability of workers to argue that they were misclassified as contractors instead of employees.

The withdrawal of the “Independent Contractor” rule will be published in the Federal Register today, and become effective on Thursday, the Washington Post reported.

Despite the news, some analysts remain bullish on Lyft’s prospects amid the reopening of the American economy.

CFRA’s Angelo Zino said that Lyft is benefitting from improved pricing, rising sales, and a more favorable cost structure after the sale of its Level 5 autonomous vehicle business to Toyota.

Zino did note that there is a “regulatory overhang,” but overall said he was “optimistic” about Lyft’s prospects moving forward.

Dan Ives of Wedbush Securities added similar comments in his note to clients on Wednesday. The analyst said Lyft’s March results gave him “increased confidence” that the company is seeing a “clear demand rebound” heading into the June quarter.

Ives believes Lyft’s guidance for EBITDA profitability by September is reasonable as well.

“Lyft (as well as its stalwart brethren Uber) is set to see a ‘roaring 20’s-like’ rebound into 2H with the red ink soon in the rearview mirror,” Ives wrote.

Wedbush’s managing director of equity research added that he expects there will be a solution to the gig worker dilemma similar to what happened in California back in March.

California voters approved a ballot measure that exempts companies that utilize the “gig economy” from having to treat workers as employees in the first quarter, freeing Uber and Lyft from a 2019 state law that entitled workers to overtime pay, sick leave, and unemployment benefits.

“Management continues to be proactive in labor policy, and we continue to expect a California-like resolution to play out across the rest of the country as well,” Ives wrote.

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Lyft stock gains 6% as company marks best week for rides since the start of the pandemic

Lyft employee
  • Lyft shares picked up as much as 6% early Wednesday following an upbeat February-trends update. 
  • Rideshare volume toward the end of February had its best week since pandemic lockdowns began in March 2020. 
  • Lyft forecast an adjusted EBITDA loss of $135 million, which is narrower than its previous loss projection of up to $150 million. 
  • Visit the Business section of Insider for more stories.

Lyft stock rose early Wednesday after the company said it’s logged its strongest period for rides in nearly a year, since the US began a wave of lockdowns to curb the spread of COVID-19.

Ridesharing volume in the week ended February 28 “was the company’s best week since March 2020,” Lyft said in a February business update released late Tuesday.

Lyft shares rose as much has 6% in heavy, premarket volume to fetch $60.49 each. The stock so far this year has gained 16% and has climbed by nearly 42% over the past 12 months.

The update highlighted broadly held expectations that business conditions throughout the country will improve as COVID-19 vaccinations accelerate. More than 78 million people in the US have already received the vaccine, according to figures from the Centers for Disease Control and Prevention.

As well, economists have said direct fiscal stimulus payments to Americans have helped bolster spending. The US Senate is considering passing a $1.9 trillion stimulus package following its approval in the House last week. A $900 billion coronavirus relief bill was finalized in December.

Lyft said average daily rideshares in February increased 4% month over month. Excluding the week of February 21 during which severe weather storms hit a number of states, average daily rideshares were up 5.1% compared with January’s volume.

The company expects ridesharing volume beginning the week ending on March 21 to show positive year-on-year growth. “This growth trend is expected to continue through the duration of 2021 barring a significant worsening of COVID-19 conditions,” said Lyft in its filing with the Securities and Exchange Commission.

It also said it “can manage” its adjusted EBITDA loss to $135 million in the first quarter. That figure is narrower than its previous projection of a loss between $145 and $150 million.

The company plans to release financial results for the first quarter ending March 31 in early May.

Read the original article on Business Insider