Lyft Inc. shares surged 24% in Thursday morning trading after the company cited small improvements in rider trends and outlined new cost-cutting initiatives, but some still question how smooth the ride-hailing giant’s recovery will be.
Piper Sandler’s Alex Potter downgraded Lyft’s stock to neutral from overweight Thursday, writing that the company may have trouble easily rebounding to pre-coronavirus levels due to health concerns about sharing rides with strange drivers.
”Lyft noted budding signs of a bottom, with ridership rising sequentially for several straight weeks through April, but even after this, early May is still trending -70% year over year,” wrote Potter, who lowered his price target to $31 from $63. “Sequential gains are encouraging, but since ride-hailing involves sharing indoor air with strangers, we expect riders may remain wary for some time.”
The company disclosed that ride-share trips were down 75% in April from a year earlier but that it has seen three straight weeks of week-over-week improvement.
“Even as shelter-in-place orders and travel restrictions are modified or lifted, we anticipate that continued social distancing, altered consumer behavior and expected corporate cost-cutting will be significant headwinds for Lyft,” Chief Executive Logan Green said on Lyft’s earnings call Wednesday afternoon.
MKM Partners analyst Rohit Kulkarni said that while Lyft’s stock rally reflects relief that “things don’t appear to be getting ‘more worse’ in certain pockets in April,” there’s still some cause for concern. For one, Lyft seems fairly reliant on shared rides and airport rides, which made up more than a quarter of rides in the second half of 2019.
The majority of these rides may not come back for the balance of the year, and these areas could see “structural changes” in the wake of COVID-19, Kulkarni said. He has a neutral rating and $33 target price on the stock.
Even some bullish analysts were careful not to get too excited about the recent improvements.
“On the earnings call, Lyft management provided a range of week-to-week growth rate trends that could prove to be a harbinger of a ‘bounce back’ in demand trends as some city shelter restrictions are unwound,” wrote UBS analyst Eric Sheridan, who has a buy rating on the stock and cut his price target to $37 from $38. “However, in our view, it is a little early to make that call.”
Others were more upbeat. “Volumes remain heavily depressed post-trough which will make for a sustainably robust debate on the name but ultimately, we are unwavering in our view that the secular story of ride-hailing adoption is intact if and as we move through COVID,” wrote Needham’s Brad Erickson, who rates Lyft shares at buy with a $41 target.
He said that “there remains meaningful wall-of-worry for the shares to climb due to skepticism over adoption and profitability – both of which are likely overdone, in our view.”
At least five analysts raised their price targets on Lyft’s stock after the report, according to FactSet, while at least six lowered theirs. Of the 38 analysts tracked by FactSet who cover Lyft, 26 have buy ratings and 12 have hold ratings, with an average price target of $43.83.
The stock is down 35% over the past three months as the S&P 500 SPX, +1.26% has lost 13%.