Here’s why the Republican tax bill could give a jolt to gym stocks. The Republican tax bill, currently navigating Congress, presents a significant opportunity for the fitness industry, particularly for gym stocks. The bill, recently passed by the House of Representatives, includes a crucial provision: the expansion of allowable uses for health savings accounts (HSAs) to encompass "qualified sports and fitness expenses." HSAs function in conjunction with high-deductible health insurance plans, enabling individuals to save pre-tax dollars that grow tax-free and can be withdrawn tax-free for eligible medical costs. This legislation proposes allowing HSA funds to cover up to $500 annually for individuals and $1,000 for joint returns or head-of-household filer's. Currently, the tax benefit appears primarily targeted toward gym stocks rather than equipment and apparel manufacturers.
"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 potentially benefiting include Planet Fitness, Life Time Group, and their smaller rival Xponential Fitness, which has a market capitalization of less than $450 million. Planet Fitness appears to be the primary focus of Wall Street analysts, largely due to its more affordable membership plans, which could be fully covered by the tax-free HSA allowance. The impact is expected to be particularly advantageous for PLNT, considering its monthly Classic Card fee is just $15, while the Black Card is $24.99 (currently testing at $29.99), compared to XPOF members who typically pay over $100 per month. Raymond James leisure products analyst Joseph Altobello noted in a research note that PLNT should capture "at least its fair share" of the benefit, with the potential for even greater gains if the tax benefit encourages customers to accept higher prices or upgrade to the Black Card plan. "The ability to reimburse gym membership costs tax-free essentially equates to a price decrease for consumers, which could reduce churn rates," Altobello wrote. Stifel analyst Chris O’Cull further emphasized this point, upgrading Planet Fitness from ‘hold’ to ‘buy’ in his note and suggesting that PLNT could benefit significantly from the policy change.
According to LSEG data, 16 out of 18 Wall Street analysts covering the stock have a ‘buy’ or ‘strong buy’ rating for PLNT. Life Time and Xponential also hold ‘buy’ ratings, though they are covered by a smaller number of firms.
The tax bill’s progression through the Senate and subsequent bicameral negotiations before reaching President Donald Trump for final approval remains crucial. Mills estimates the bill could reach Trump’s desk in August, with approximately 80% of the House legislation ultimately included. Given the lack of controversy surrounding the HSA expansion, Mills believes the gym-benefiting line item has a "fairly high probability of staying in." However, the market may already anticipate the expected benefits before the bill is signed. The gym stocks experienced a rise on Monday, with Planet Fitness up over 6% in the past month. Life Time issued a statement to CNBC, describing the provision as a "low-cost, high-impact public health strategy." They urged the U.S. Senate to retain this consumer health provision, aiming to promote the physical and mental wellbeing of millions of Americans. The potential for increased membership growth, driven by the tax benefit, could further enhance the value of higher Classic membership pricing and any future Black Card pricing actions. Finally, the potential for increased Black Card penetration rates is also a consideration if consumers are more willing to trade up with the reimbursement option. Ultimately, the success of this provision hinges on the final form of the tax bill and its passage through Congress.
