Lyft Drops After Court Order To Classify Drivers As Employees

Shares of Lyft fell 2.6% in extended trading on Monday after a California judge ruled that the ride-sharing company should reclassify contractors as employees. The court has granted a 10-day stay before the order takes into effect.

Lyft (LYFT) had been accused of violating California state’s Assembly Bill 5 law. The bill requires companies to categorize workers as employees if they control how workers need to do their jobs.

The ruling is poised to increase Lyft’s cost base at a time when the company is grappling with a decline in ride-hailing demand amid the COVID-19 pandemic. Wedbush analysts estimate that reclassification of current drivers as employees will increase the company’s labor costs by 30%. The ride-sharing company has decided to appeal the ruling.

Ahead of the ruling, Credit Suisse analyst Stephen Ju lowered the stock’s price target to $66 (113% upside potential) from $75, while maintaining a Buy rating. Ju believes that “work/commute related activity will take some time to recover as corporations should behave in a more risk averse manner about bringing employees back into the office in favor of work-from-home.”

Overall, LYFT has a Moderate Buy analyst consensus. With shares down 28% year-to-decline, the average price target of $45.92 implies an upside potential of about 48% to current levels. (See LYFT stock analysis on TipRanks).

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