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Dr. Paul Price
Dr. Paul Price
Articles (513)  | Author's Website |

LifeTime Fitness – What Doesn’t Kill You Makes You Stronger

February 11, 2013 | About:

The Feb. 1 preannouncement that fourth quarter 2012 and full year 2013 EPS would fall short of analysts' expectations torpedoed the shares of Life Time Fitness (NYSE:LTM). The stock dropped 22% that day to a 14-month low.

Major news services like Barron’s and Bloomberg competed to be first to "explain" the huge sell-off publicly. Bloomberg’s report hit the wires just 13 minutes after the close with nary a good word to say about the company. They even pointed out that LTM had only gained 5.3% in 2012 versus its benchmark index which rose 22%.


Saturday morning’s Barron’s chimed in with an equally downbeat assessment while noting how the "feeble" gains expected for 2013 justified the big share price decline. Neither publication gave their readers even a glimmer of hope that the already discounted price was a bargain shopper’s dream in a market full of otherwise marked-up merchandise.


Brokerage firm William Blair jumped on the negativity bandwagon with a premarket downgrade on Feb. 1. That came too late to help anybody already in the shares. It also may have served to dissuade value seekers who otherwise might have been thinking about buying LTM under $40.


Was LTM a bad company or was this a case of a good company’s shares that had, perhaps, gotten a little ahead of themselves? Judge for yourselves. The figures for 2012 reflect the downwardly revised expectations announced February 1.


Unlike most companies, Life Time Fitness came through the Great Recession with almost no loss of fundamental momentum. In 2009 it had just a one penny dip in EPS despite dire economic conditions. As the economy recovered so did LTM’s earnings growth. That tells me their business plan is working and that their customers love them.

What was the terrible news that drove LTM down by 22% overnight? Management indicated that the fourth quarter would come in at $0.53 to $0.56 against 2011’s $0.48. That included a $0.07-cent charge mainly related to business disruptions due to Hurricane Sandy. Full year 2012 guidance dipped all of 2.23% (from $2.69 to range from $2.63 to $2.66). EPS in 2013 are now indicated to fall to between $2.85 and $2.95 versus prior analysts' views of $2.98. What a disaster!


During the eight years from 2004 through 2011 LTM carried an average P/E of 22.6x. It peaked at multiples of $19.8x and 23.4x during 2012 and earlier this year. Today’s forward P/E is lower than was available at their three most recent "best buying opportunities."

A rebound to a middle-of-the-road 18 times projected 2013 EPS of $2.85 would support a $51.30 one-year price target. That’s a solid 18.6% above last week’s close. It’s also a reachable and realistic goal that was already exceeded in 2012 and 2013.

Life Time Fitness is a backdoor play on America’s yoga and fitness craze. Unlike Lululemon (LULU), you don’t need to pay more than 40 times earnings for it.

Option savvy investors could consider writing (selling) puts out to August 2013 to either lock in gains if the options expire or a lower than market purchase price if the puts end up exercised.


Break-even (if put) prices would be $37.45, $40.10 or $41.80 or less, respectively, on the $40s, $45 and $50 strikes. The lowest priced ones are already out of the money and it’s not hard to imagine even the $50s expiring worthless -- a good thing for sellers.

The early February plunge was a blessing for those who care about value and were willing to buy what short-sighted analysts were dissing. I bought shares and sold puts last week. If the stock rallies a few more dollars I may be tempted to sell covered calls at $50 or $55 strike prices. The August $50 calls were already fetching $1.70 per share late last week.

Disclosure: Long LTM shares, short LTM puts

About the author:

Dr. Paul Price


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Rating: 4.2/5 (5 votes)


Dr. Paul Price
Dr. Paul Price - 4 years ago    Report SPAM

An LTM Director bought 3,000 shares @ $41.954 /share on Feb. 26th, the first day insider trading restrictions were lifted.
Dr. Paul Price
Dr. Paul Price - 9 months ago    Report SPAM

LifeTime was taken private at $72.10 per share in 2016.

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