Lyft Looks Poised to Rally Over the Next Few Months

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In line with my previous predictions, Lyft (NASDAQ:LYFT) stock soared from mid-March to the end of April. The company’s better–than-expected first-quarter results, along with the relatively positive comments that it made in conjunction with the report, more than justified the stock’s previous gains and caused the shares to rise a bit more.

Liquidity Will Give Lyft Stock a Post-Virus Boost
Source: Roman Tiraspolsky / Shutterstock.com

But given the fact that all 50 states are now opening their economies and airplane travel is rapidly recovering, Lyft stock should rise further soon. Furthermore, positive catalysts for Lyft I’ve discussed in the past should become stronger and more apparent in the near term.

Finally, there’s a good chance that the negative impact of the novel coronavirus will greatly fade in the coming weeks and months. Of course, such a development would greatly boost Lyft stock

First-Quarter Results

Lyft’s Q1 earnings per share came in at -$1.31, versus analysts’ average estimate of -$1.36. The company reported revenue of $955.7 million, well above the mean estimate of $830.2 million.

More importantly, on the company’s earnings conference call, CEO Logan Green, reported that the number of rides provided by the company had fallen 75% on a year-over-year basis. I’m sure that many analysts, pundits, and investors had expected a drop of 90% to 95%.

Moreover, Green reported that, ahead of the May 7 earnings call, ridership had risen for three consecutive weeks, However, the number of riders was “still down more than 70%” year over year during the week before the call.

Q2’s Positive Catalysts

Still, many thousands of people were using Lyft in the midst of the lockdowns. That suggests that my theory about consumers using ridesharing as an alternative to mass transit was probably correct.

Many residents of cities tend to depend on mass transit. As more cities open their economies, the number of people who use Uber (NYSE:UBER) and Lyft as alternatives to mass transit during the pandemic is going to rise tremendously. That trend is likely to become more apparent when Lyft reports its Q3 results.

Meanwhile, the number of Americans using airplanes is soaring. In a previous column, I noted that more than 1.5 million people were checked by the TSA at U.S. airports during the Memorial Day weekend, up from fewer than 90,000 people per day in mid-April.

The revival of air travel is important to Lyft and LYFT stock for a few reasons. Many people take ridesharing services from airports to their destinations, and many consumers frequently use ridesharing services during their vacations. So, with the number of people taking airplanes to vacation destinations surging, Lyft’s revenue should jump in May and June versus April.

Additionally, the fact that hundreds of thousands of people are now willing to fly shows that fear of the coronavirus has greatly dropped. And if 1.5 million people were willing to get on planes with dozens of other people, who may or may not be wearing masks, how many will be ready to get in a Lyft vehicle with one driver who will definitely be wearing a mask?

Further, as I’ll show in the next section, there’s a good chance that fear of the virus will drop much further going forward.

The Second Half’s Positive Catalysts

According to Barron’s, Cowen analyst Helane Becker predicts passenger traffic to reach 400,000 a day by August, up from more than 260,000 now. She also predicts daily passenger traffic will reach 1 million by December.

That makes sense because there are multiple indications that the coronavirus will greatly weaken in third quarter. First of all, many experts have now acknowledged that its spread greatly decreases during the warm weather.

Secondly, the head of an Italian hospital recently reported that the virus was not nearly as strong in Italy as it had been a month or two ago. And in a recent clinical trial, Gilead’s (NASDAQ:GILD) remdesivir drug prevented all but two of nearly 400 hospitalized patients from dying over an 11 -day period. That indicates that the drug could save all but the oldest and most vulnerable patients from dying if they receive it early enough.

The Bottom Line on Lyft Stock

Lyft’s better-than-expected performance in April suggests that consumers are using it as a substitute for mass transit. That trend should intensify going forward. Moreover, the company should benefit from the growth of demand for flights and the reopening of the economy. Finally, fears about the virus are likely to drop sharply in Q3, giving Lyft another boost.

With Lyft stock still down 50% from its 52-week high, investors should buy the shares.

As of this writing, Larry Ramer owned shares of Gilead. Larry Ramer has conducted research and written articles on U.S. stocks for 13 years. He has been employed by The Fly and Israel’s largest business newspaper, Globes. Larry began writing columns for InvestorPlace in 2015. Among his highly successful, contrarian picks have been Lyft, solar stocks, and Snap. You can reach him on StockTwits at @larryramer.

Larry Ramer has conducted research and written articles on U.S. stocks for 15 years. He has been employed by The Fly and Israel’s largest business newspaper, Globes. Larry began writing columns for InvestorPlace in 2015. Among his highly successful, contrarian picks have been SMCI, INTC, and MGM. You can reach him on Stocktwits at @larryramer.


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