RBC’s Brad Erickson sees an about 30% upside in Lyft stock

Lyft Inc (NASDAQ: LYFT) reported a strong revenue beat in its second quarter results which helped the ride-hailing company become EBITDA profitable for the first time ever. In a note sent to clients following the earnings release, RBC Capital Markets’ Brad Erickson maintained an Outperform rating on Lyft’s stock with an unchanged $70 price target.

The bull case for Lyft stock

Lyft “handily” beat expectations in the second quarter due to active ride upside and pricing benefits stemming from a driver shortage, the analyst wrote in the report. July driver trends remain encouraging and anecdotal commentary around airport traffic makes the case for Lyft’s stock to benefit from the “re-opening thesis” which is “still very much in process.”

Debunking the bear case

Are you looking for fast-news, hot-tips and market analysis?

Sign-up for the Invezz newsletter, today.

Lyft bears do have some ammunition in the belt exiting the earnings report. Specifically, Lyft’s management guided for incremental investments in driver supply despite prices set to normalize. The analyst wrote this “may spook” some investors as the level of investments could remain high into 2022.

But the analyst isn’t buying into the bear camp. He wrote:

While this could be a negative near-term signal for the industry until demand fully recovers, we believe these investments are likely to prove transitory and we simply believe that LYFT is paying especially close attention competitively to ensure that it maintains its share as all riders should come back to the market in the coming year.

The bottom line

Lyft may have thrown “cold water” on the stock after its commentary on incremental investments but this should be “entirely transitory,” the analyst wrote. Investors should overlook any near-term noise and focus on 2022 amid expectations for the ride-hailing company to earn hundreds of millions of dollars in EBITDA. Erickson wrote:

The ride-hailing players(Lyft and Uber)remain largely in front of the re-opening and thus continue to be two of our favorite
names in our coverage