Topline
The surging popularity of weight-loss drugs may immediately seem to be potentially problematic for fitness stocks, as individuals have an alternative to shed pounds, but analysts suggest the craze is likely a boon for the industry as takers of these drugs likely will invest further in their appearance and wellness.
Planet Fitness is among the largest gym stocks in the U.S. Shares are down 18% this year.
Key Facts
Soaring sales of injectable GLP-1 semaglutide drugs like Ozempic and Wegovy have boosted the stocks of the drugmakers and weighed on grocery and packaged food stocks reacting negatively to the potential change in Americans’ diets, but the impact on the fitness sector has been more muted thus far.
Though on first thought it may look like the newly unlocked chance to lose weight via medication could dampen interest in gyms, there’s a budding consensus on Wall Street that GLP-1s will help, not hurt, the industry; a Morgan Stanley survey last month found a twofold increase in weekly exercise for individuals after beginning their weight-loss drug regimen.
BMO Capital Markets analyst Simeon Siegel told Forbes he believes Ozempic and similar drugs have “the potential to trigger greater gym usage” as weight loss could lead to a widespread “desire to be more fit,” while Piper Sandler analyst Korinne Wolfmeyer concurred the GLP-1 popularity will “probably be a tailwind” for fitness stocks as people aim to maintain their weight loss.
Both Siegel and Wolfmeyer noted it’s far too early in the trend to directly incorporate weight loss drug-related consumer behavior changes into their models for fitness companies they cover, but some of the U.S.’ largest gyms have already begun to get ahead of the narrative.
Life Time Group president Jeff Zwiefel told CNBC last month his high-end gym chain is beginning a pilot program to use in-house medical professionals for an “integrated” approach to deliver the injectables to their members, while Anthony Geisler, CEO of Club Pilates and Pure Barre parent Xponential Fitness, cited the “early” potential of Ozempic boosting growth in a Tuesday earnings call (Planet Fitness, the largest publicly-traded American gym chain, has yet to provide much color on its thoughts on GLP-1s, but Bank of America analysts recently cited the positive impact of the drugs as a chief driver of its buy rating for the stock).
As for the reasoning behind the relative lack of attention on the impact of the drugs on gym stocks, Siegel explained that how weight loss drug users’ gym usage changes is a second-derivative effect compared to the first-derivative effect of how food intake will change, as well as the relatively small equity valuations of gyms—Planet Fitness’ market capitalization is $5.7 billion, Life Time’s is $2.6 billion and Xponential’s is about $660 million—compared to the massive valuations of food stocks like Walmart.
What To Watch For
If discussions on weight loss medications significantly bleed into other, larger discretionary spending sectors tied to physical appearance. Siegel, who covers athletic apparel giants Nike ($161 billion market cap) and Lululemon ($52 billion market cap), traced out a “very good” related scenario for these clothing companies in which the psychological and physical changes for Ozempic users leads them to “join the athleisure craze” as they become more invested in fitness and need to buy clothing in new sizes. Wolfmeyer, who covers beauty companies like Estee Lauder and Ulta, told Forbes you can “probably” make a similar argument for beauty stocks as the “broader awareness for appearance could be a tailwind.”
Big Number
$12.5 billion. That’s how much Ozempic and Wegovy sales the drug’s Danish manufacturer Novo Nordisk reported during the first nine months of 2023, a roughly 90% year-over-year increase.
Key Background
American pharmaceutical giant Eli Lilly has raked in $3 billion in sales this year for its injectable drug akin to Ozempic and Wegovy, Mounjaro. Eli Lilly and Novo Nordisk are the two most valuable pharmaceutical companies in the world thanks in large part to bullishness on their drugs used for weight loss, spurring more than 60% stock gains for both firms. The Food and Drug Administration approves both Wegovy and Mounjaro for weight loss, while Ozempic is greenlit for Type 2 diabetes but often prescribed as an off-label weight loss treatment. The appetite-reducing drugs will reduce total American caloric intake by 1% to 3% by the end of the decade, according to Bank of America. Stocks associated with less healthy foods have plunged as weight loss drug intake has spiked. The S&P 500’s packaged food and meats sub-index is down 20% over the last six months, compared to the broader index’s 6% rise during the same time period.
Further Reading
