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Buy Town Sports (CLUB) on Life Time Fitness (LTM) Rumors, Says Analyst

March 6, 2015 8:27 AM EST
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Price: $0.20 --0%

Rating Summary:
    2 Buy, 3 Hold, 0 Sell

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Today's Overall Ratings:
    Up: 13 | Down: 11 | New: 11
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Life Time Fitness (NYSE: LTM) gained pre-market on rumors it is in advanced talks with private equity. In the view of KeyBanc analyst Scott W. Hamann, the rumor is a positive for Town Sports Int'l (NASDAQ: CLUB). He also warned investors may take profit in Life Time Fitness on today's strength.

Hamann said, "We believe this development points to renewed takeout interest in the fitness space and is a positive for CLUB, which recently hired an adviser to pursue strategic alternatives. While the two businesses have fundamentally different strategies (suburban vs. urban, high-end vs. mid-tier, etc.) and CLUB is in the midst of a structural turnaround, the stock currently trades at 5.5x our 2016E (reflective of more normalized earnings under the new HVLP model) and our $9 per share price target utilizes a 6.5x multiple on our 2016E, implying meaningful upside from current levels should a deal get done at an appropriately discounted multiple to recent transaction comps."

On Life Time Fitness, he said, "While we are not entirely surprised by the news given LTM's added language in the 4Q14 release, we view the stock as fully valued within a range of $60-$65 per share, reflective of either the near-term upside that a successful REIT spin-off would create or a stretched multiple that a potential buyer would pay, with TTM multiples in the range of 9.5-10.5x, respectively, vs. recent deal multiples in the fitness club space of around 7-8x (24 Hour Fitness roughly 8x and Sport & Health roughly 7x). Conversely, it is probable that the aggressive pursuit of a sale of the Company also points to the reduced likelihood of a REIT spin-off materializing. Either way, investors may take profits into any strength today on the news."



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