One Analyst Says The Lyft Stock Is Ripe For Profit

Lyft LYFT +0.43% shares are now at a good price and so it is time to take profits.

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As Gordon Haskett analyst Robert Mollins advised Monday, that is what investors should do. He had turned bullish on the stock of the ride-sharing company in October, which turned out to be a prescient call. It was then that Lyft (ticker: LYFT) rallied 54% in the following months.

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Mollins now has a Hold rating on the stock as opposed to a Buy rating, which he has lowered from $24, which was the previous price target that Mollins had set for it. Shares of Lyft were trading at $17.27 on Monday afternoon, down 0.6% from the previous day.

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The decision we are making here goes beyond simply valuing the company. It is believed that the number of active riders in the fourth quarter will be lower than Wall Street's expectations, putting pressure on top line growth, according to Mollins' data on app downloads. He forecasts that there will be 19.5 million active riders in the third quarter, which is about one million short of what was expected.

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Furthermore, he believes Wall Street will also be likely to lower its revenue and profit forecasts for both 2023 and 2024 as a result of these factors. In order to gain exposure to the ride-sharing sector, investors need to consider Uber Technologies UBER +1.15% ( UBER ), which Mollins rates as Buy, because it has a more geographically diverse business model that should partially shield the company from continuing U.S. regulatory risks, according to Mollins.

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Mollins points out that Lyft is "making meaningful progress" in reducing wait times for rides, but he is unsure whether this has anything to do with using higher prices to attract drivers, or possibly giving up market share by charging more per ride in order to attract more drivers. During the last three months, he estimates that Lyft has been charging on average 10% more than Uber in terms of fare over the last three months.

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“As a result, we believe this is an unsustainable dynamic since we believe consumers are going to prefer Uber over Lyft in the future, resulting in incremental share gains for Uber in the future,” he explains.

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Mollins, on the other hand, points out that there are regulatory risks involved. It is expected that a California court of appeals will make a decision before the end of the first quarter concerning a case involving Proposition 22, a measure approved by the voters to shield gig-economy companies from a California law intended to reclassify many contract workers as employees. A lower court in California had ruled that Prop 22 was unconstitutional. It is also the recent attempt in New York to raise the wages of gig drivers that he sees as a potential risk.

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It is expected that Lyft will report its earnings for the fourth quarter on Thursday. The management of the company has forecast revenue in the range of $1.145 billion to $1.165 billion, representing a gain of 18% or 20% over last year's result. Based on the company's forecasts, the adjusted earnings before interest, taxes, depreciation, and amortization will range between $80 million and $100 million for the current year.

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In terms of revenue, the Street consensus calls for the company to make $1.16 billion in sales and earn 13 cents a share in profit.