Hitch a Ride with Lyft Stock for Double-Digit Gains in 2nd Half

Key Points

• Lyft had a solid Q1 and is guiding for sustained improvement in revenue and earnings.
• Analysts like what they see and have begun to lift their targets for Lyft. 
• The stock has a 30% upside potential at the consensus and could easily break to a new high by year-end.

Lyft’s NASDAQ: LYFT efforts to improve efficiency while accelerating growth have caused a shift in sentiment that points to a double-digit upside for this stock. The latest results and guidance weren’t a blow-out but still stronger than expected, leading the analyst to upgrade the stock and raise their targets. The takeaway from the chatter is that tailwinds have begun to blow, the group is hopeful that improvement will be sustained, and the stock is cheap. Trading at $14, it is trading near the lowest target set this year and offers a 30% upside at the consensus. 

Market Conviction Firms for Lyft; Helps Lift Share Prices

MarketBeat tracks 30 analysts with ratings on Lyft, so the rating has higher-than-average conviction. The consensus rating is a firm Hold with rising sentiment, and many of the latest updates include an upgrade to Buy or Strong-Buy equivalents, providing a tailwind for the market. That tailwind put LYFT stock on MarketBeat’s list of Most Upgraded names. The stock rose to the 7th position on the list, so the tailwind is strong.

The analysts' consensus price target implies a nearly 30% upside, but the fresh targets lead to the range's high end. The high-end target is another 25% above the consensus and may be reached by the end of the year. Because the company is expected to sustain improvement and analysts expect the revision trend to remain positive, the stock price should continue higher and complete a technical reversal by early 2025. 

Lyft’s Stock Price Slips Despite Solid Results and Analysts' Support

Lyft's Q1 report was solid. The company reported top and bottom line strength and accelerating growth compared to last quarter and the prior year. The growth pace nearly doubled compared to last year and is expected to remain solid through year-end, although it will slow. Internal metrics include a 23% increase in rides on a 21% increase in bookings driven by a 12% increase in active users. 

The growth in active users and revenue is aiding the bottom line. The company continues to post GAAP losses, but the burn decreased by 85% during the quarter. The salient detail is that the company posted its second consecutive quarter of free cash flow and is guiding for a full year of the same. 

The balance sheet details are mixed but ultimately favorable to investors. The company reported a slight decline in its cash position and increased long-term debt. Still, assets are up and offset the increased liabilities, resulting in improved equity, and leverage remains low. The company’s long-term debt is about 2x equity and less than 2x cash, leaving it in a solid position to sustain operations. 

Lyft Adds Fuel to the Fire

Lyft helped invigorate the market when it released its latest long-term targets. The company forecasts a 15% bookings CAGR through 2027 and an adjusted EBITDA margin of 4% in the final year. The targets were above the consensus at the time of release and viewed as easily beatable, provided tailwinds continue to blow. The risk is execution. With a three-and-a-half-year horizon, there is a risk the company will fail to deliver. 

The technical action is favorable. The market fell following the Q1 release, but the action was light and remains consistent with a reversing market. As it stands now, the market has changed from a downtrend to a sideways trading range and is trading above a critical support target. That target is near $12.50 and lows set earlier this year. If the market sustains support at this level, it will likely rebound soon and reach the top of the range. The top of the range coincides with the analysts' consensus and may cap gains for this technology stock. However, if the market can set a new high, a move up to the high end of the range is likely.