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Bernstein maintains price target for Lyft at $14, cites pending Q4 update



 

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On Monday, Bernstein reiterated its Market Perform rating on Lyft (NASDAQ:LYFT) with a steady price target of $14.00. The firm’s analysis suggests that the upcoming fourth quarter update will be pivotal for Lyft, as the recently appointed management team is expected to present its long-term goals for the first time. This will include financial targets, which Bernstein believes are currently being miscalculated by the consensus, particularly in terms of trip-level gross margin.

The report also addresses the competitive landscape, acknowledging that while Lyft may not be able to significantly alter investor sentiment regarding Uber (NYSE:UBER)’s scale and platform advantages, there are opportunities for Lyft to close the valuation gap. This would involve setting realistic expectations and consistently exceeding them, a strategy that has benefited Uber in the past two years.

Bernstein cautions that the general market expectations for Lyft’s gross margin may be overestimated by approximately 400 basis points, posing a risk for future EBITDA revisions. The firm points to insurance costs as a continuing issue for Lyft and suggests that there is a limit to how much fixed costs can be reduced to compensate for this.

Lyft is encouraged to provide a clear outline of its strategy from 2023 to 2026, with Bernstein anticipating a low-teens compound annual growth rate (CAGR) in Gross Bookings, slightly above the consensus. Potential growth could reach the mid-teens. Despite recent improvements in volume and supply, the company is advised to elaborate on the dynamics between its core service and new product offerings.

In terms of profitability, Bernstein projects a mid-single-digit incremental adjusted EBITDA margin as a percentage of Gross Bookings over a three-year period, which is more conservative compared to the 6.5% expectation of the Street. The analysis delves into the specifics of insurance costs per trip and how Lyft can offset these costs, suggesting that while price increases would be effective, moderating driver incentives may be a more tangible approach due to Uber’s price restraint.

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