Here's why the Republican tax bill could give a jolt to gym stocks

CNBC

2 days ago

The tax and spending bill winding its way through Congress could end up delivering a gift for exercise buffs and a boost to the stock price of their favorite gyms. The bill that passed the House of Representatives last month included a provision that would expand the allowable uses for health savings accounts to include "qualified sports and fitness expenses." HSAs work alongside high-deductible health insurance plans, and they allow savers to put away pre-tax dollars and have them accumulate free of taxes. The money can be withdrawn tax free to cover qualified medical expenses. The bill calls for allowing the HSA funds to pay up to $500 per year for an individual, and $1,000 for a joint return or head of household filing. At least for now, the tax benefit seems like it would only be a direct boost for gym stocks rather than equipment and apparel makers. "There's a distinction between kind of the online, at home versus in-person, live" said Ed Mills, Washington policy analyst at Raymond James. The gym stocks that could theoretically benefit include Planet Fitness , Life Time Group and their smaller rival Xponential Fitness , which has a market cap of less than $450 million. Of these, Planet Fitness seems to be the one that Wall Street analysts are identifying as a beneficiary, in part because its cheaper membership plans could be covered entirely by the tax-free allowance. "The impact would likely be particularly helpful for PLNT, as its monthly fee is only $15/month for the Classic Card and $24.99 for the Black Card (though it is conducting a test at $29.99), while the typical XPOF member pays > $100/month," Raymond James leisure products analyst Joseph Altobello said in a note. Similarly, Stifel analyst Chris O'Cull said in a recent note that PLNT should capture "at least its fair share" of the benefit from the policy change with the potential for even more benefits if the tax benefit makes customers more willing to accept price increases or trade up to the Black Card plan. "There are several potential questions to consider beyond the 'all else equal' scenario. First, incremental membership growth would increase the benefit of higher Classic membership pricing and any future Black Card pricing actions. Second, the ability to reimburse gym membership costs tax-free essentially equates to a price decrease for consumers, which could reduce churn rates. Finally, there could also be an impact on Black Card penetration rates if consumers prove more willing to trade up with the reimbursement," O'Cull wrote. The Stifel analyst upgraded Planet Fitness to buy from hold in that note. According to LSEG, 16 of the 18 Wall Street analysts covering the stock give it either a buy or strong buy rating. Life Time and Xponential also have buy ratings from the majority of their analysts but are covered by fewer firms. Timeline The tax bill still needs to pass the Senate and then likely another round of bicameral negotiations before it is sent to President Donald Trump for final approval. The fitness provision could fall out or change as a part of this process. Mills estimated that the bill could hit Trump's desk in August, with about 80% of the House legislation making the final cut. Given that the HSA expansion has not been controversial, Mills said the line item benefiting gyms has a "fairly high probability of staying in." Of course, the market may price in the expected benefits from the tax bill before it is signed by Trump. The gym stocks rose on Monday, and Planet Fitness is now up more than 6% over the past month. In a statement to CNBC, Life Time called the bill's provision a "low-cost, high-impact public health strategy." "As it considers the House version, we urge the U.S. Senate to retain this vital consumer health provision to promote the physical and mental wellbeing of millions of Americans," the statement said.