(Bloomberg) -- Lyft Inc. gained yet another bullish analyst on Thursday as Deutsche Bank initiated coverage with a buy rating, saying the stock may be bottoming.
Lyft shares have taken a hit as California considers new rules governing contract employees, and investors reassess their appetite for unprofitable companies and question the merits of ride-sharing as a business, but some of these concerns could be overblown, analyst Lloyd Walmsley said.
“We think there are barriers to scale in ride-sharing,” the analyst wrote in a note to clients, adding that a “rational duopoly in the U.S. makes Lyft a good business today, and improving efficiency should drive healthy long-term margins.”
Walmsley said the near-term overreaction to regulatory risk in California has created an attractive entry point, and doesn’t affect either its large potential addressable market or an improved competitive environment with fewer subsidies to drivers and riders. Lower subsidies and insurance costs, higher prices plus improved efficiency clear a path to improved profitability, he said.
California Assembly Bill 5 (AB5), which is nearing passage and faces a Sept. 13 deadline, when the legislative session ends, could make it tougher for companies to classify workers as independent contractors rather than employees.
Lyft shares are now down 34% since their public market debut in March. Uber’s stock has fallen 27% since its May initial public offering.
Lyft now has 25 analysts recommending buying the stock, while nine say hold and three advocate selling.
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