Key points:
- Lyft shares rise over 3% premarket
- The company's stock was upgraded to Buy
- KeyBanc believes Tuesday's fall was an overreaction
Lyft (NASDAQ: LYFT) shares are up over 3% premarket Wednesday after the company's stock was upgraded by analysts at Gordon Haskett based on “overly negative” sentiment.
Lyft was upgraded to Buy from Hold with a $24 per share price target in a research note released by the firm. Gordon Haskett analyst Robert Mollins said they continue to see Lyft as “disadvantaged” compared to rival Uber (NYSE: UBER). Still, they feel the combination of Lyft's material share price underperformance for the year-to-date and relative valuation discount to Uber, “overly negative” investor sentiment, and “multiple catalysts” creates a favourable risk-reward dynamic.
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Gordon Haskett said the catalysts for Lyft include improving national driver supply, better conversion rates, and continued shared ride adoption. In addition, Mollins wrote that Lyft's new upfront pay capability should be key in attracting and maintaining drivers. Mollins also commented that the company “is increasingly looking like a prime activist target.”
Lyft's stock, which is down 74% in 2022, tumbled 12% yesterday after the Department of Labor issued a new proposal that could classify drivers as employees rather than contractors.
However, after the close on Tuesday, KeyBanc analyst Justin Patterson said the fall appeared to be an overreaction. The analyst said in a research note that the Department of Labor's proposed rules are net neutral to rideshare companies and he believes that the only headwind to fundamentals would be if rule changes heighten pressure on driver supply in select markets or if companies begin lobbying to avoid state-level adoption. In addition, he stated that the majority of current rideshare drivers for both Uber and Lyft will not be impacted by the proposed rule.
