Analysts and Other Critics Are Giving Life Time Fitness (LTM) a Tough Workout (CLUB & STNR)

On Thursday, small cap fitness club owner Life Time Fitness, Inc (NYSE: LTM) lost some weight for investors as analysts gave the stock a workout after its Analyst Day failed to ease their concerns, meanings its worth taking a closer look at the stock along with the performance of Town Sports International Holdings, Inc (NASDAQ: CLUB) and Steiner Leisure Ltd (NASDAQ: STNR).

What is Life Time Fitness, Inc?

Small cap Life Time Fitness helps organizations, communities and individuals achieve their total health objectives, athletic aspirations and fitness goals both inside and outside the company's distinctive and large sports, professional fitness, family recreation and spa destinations, most of which operate 24 hours a day, seven days a week. As of June 5, 2014, the Company operated 111 centers under the LIFE TIME FITNESS® and LIFE TIME ATHLETIC® brands in the United States and Canada.

As for potential peers, Town Sports International Holdings, Inc is a leading owner and operator of fitness clubs in the Northeast and mid-Atlantic regions with 162 fitness clubs as of March 31, 2014, comprising of 108 New York Sports Clubs, 29 Boston Sports Clubs, 16 Washington Sports Clubs (two of which are partly-owned), six Philadelphia Sports Clubs, and three clubs located in Switzerland. Steiner Leisure Ltd is a global provider of spa services, medi-spa services, a manufacturer and distributor of premium skin, body and hair care products and an accredited educator teaching students the skills necessary to be a spa professional, including massage, skincare and spa management.

What You Need to Know or Be Warned About Life Time Fitness, Inc

On Thursday and following the Life Time Fitness analyst day (which was intended to ease concerns about the stock), William Blair said that company revenue and earnings growth may remain constrained through at least 2015 because management had cautioned that the continued growth in studio clubs will likely continue to pressure the membership growth as well as same-store sales. For those reasons, William Blair lowered its 2015 earnings estimate to $3.41, below the consensus of $3.47, and are keeping a Market Perform rating on the stock.

William Blair analysts weren't the only analysts now wowed or won over as Piper Jaffray also downgraded the stock to Neutral from Overweight and cut its price target to $54 from $59 with significant studio competition being cited as a reason.

In addition and just a few weeks ago, it was reported that Marcato Capital had disclosed a 7.2% activist stake in Life Time Fitness. They have also urged the company to accelerate its expansion plans and explore options for its real estate holdings. Citing the involvement of Marcato Capital, Piper Jaffray said at the time that it was "certainly possible" that Life Time Fitness could announce plans to create a REIT at its analyst day on June 4. Piper also estimated that the the stock is worth between $53 and $74 depending on multiple REIT assumptions and they raised its price target for shares to $59 from $55 while keeping an Overweight rating.

I should mention that the recession hit Life Time Fitness rather hard as many consumers struggled to keep up with monthly dues that can top $100 as the company's facilities are decidedly upscale. However, Life Time Fitness has reported revenues of $1,205.90M (2013), $1,126.95M (2012), $1,013.67M (2011) and $912.84M (2010) along with net income of $121.71M (2013), $111.54M (2012), $92.62M (2011) and $80.69M (2010) – meaning activist investors and other critics just want to wring more money out of the company for shareholders.

Share Performance: Life Time Fitness, Inc vs. CLUB & STNR

On Thursday, small cap Life Time Fitness sank 11.69% to $45.91 (LTM has a 52 week trading range of $40.15 to $56.94 a share) for a market cap of $1.88 billion plus the stock is down 1.29% since the start of the year, down 7.9% over the past year and up 120.3% over the past five years. Here is a look at the long term performance of Life Time Fitness verses that of Town Sports International Holdings and Steiner Leisure Ltd:

As you can see from the above chart, Life Time Fitness has steadily gained weight for investors while Town Sports International Holdings and Steiner Leisure Ltd have been loosing weight for investors this year.

Finally, here is a look at the latest technical charts for all three fitness or spa stocks:

The Bottom Line. In defense of Life Time Fitness, trying to wrangle more money for shareholders may not be a good think for the long term health of a company that offers a purely discretionary and somewhat of a luxury service. Nevertheless, it's a stock worth watching given the possibility of change coming – one way or the other.