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Peloton is upbeat about the growth potential for its Connected Fitness offering, which offers access to virtual workouts.
Peloton
Investors have shown some concern lately about whether popular “stay-at-home” companies would be able to sustain their momentum, but analysts seem to feel optimistic about the prospects for Peloton Interactive Inc going forward.
Shares of Peloton PTON, +2.98% were up about 3% in Friday morning trading after the maker of connected exercise equipment posted record quarterly revenue and its first quarterly profit, while disclosing that it still had a big backlog of orders due to surging demand during the COVID-19 crisis.
“While we harbored modest concerns around the full-year guide in the face of so many COVID-related unknowns, management’s expectations of greater than 2 million connected fitness subscribers to exit FY21 is almost 20% higher than the sell- side,” wrote Evercore ISI analyst Lee Horowitz, referring to the company’s subscription service for video-based workouts.
Horowitz called Peloton “the most obvious long-term beneficiary from COVID in consumer internet” and argued that “as the company’s guidance indicates, the benefits from this unfortunate crisis are likely to prove incredibly sticky.”
He maintained an outperform rating on the stock and nearly doubled his price target to $120 from $62.
Rosenblatt Securities analyst Bernie McTernan also keyed in on the subscription momentum. “The standout of earnings was the better than expected Connected Fitness subscriber guide, calling for another nearly doubling of subscribers and without a major impact from the value [treadmill] which we expect to be a significant driver in FY’22E,” he wrote. “The focus on affordability should accelerate the mix shift of revenue and profits towards subscription, which is the core value creator for the company.”
McTernan has a buy rating on Peloton’s stock and upped his price target to $130 from $105.
Read: Peloton reduces price of signature exercise bike, introduces fancier bike and lower-cost treadmill
Stifel analyst Scott Devitt argued that Peloton has a big runway ahead and likened the company to Netflix Inc. NFLX, +1.87% and Amazon.com Inc. AMZN, +0.18%
“The gym of the future may be left mostly for muscleheads, hookups, and those in cramped living quarters, as an increasing portion of the population opt to work out in the home now that technology allows for it,” he wrote.
Devitt wrote that Peloton has a “huge lead” in in-home cardio workouts and will eventually build up its strength offerings “just like [how] Amazon started with books and now is the everything store.” Further, “the phenomenon will span the globe and there are significant cost advantages to building content on a global basis just like Netflix.” he wrote, while reiterating a buy rating and raising his price target to $120 from $72.
Barclays analyst Deepak Mathivanan wrote that Peloton “has restarted the sales of its Treads in many markets already, as COVID restrictions ease, which should contribute incrementally to revenues on top of strong bike sales over the next few quarters.”
Mathivanan cautioned that there were still some negatives in the latest commentary, including that the company’s gross margins for its Connected Fitness product are expected to compress and that the forthcoming lower-priced treadmill offering could pressure gross margins as well.
He continues to rate the stock at overweight while boosting his price target to $110 from $74.
At least 19 analysts upped their price targets on Peloton’s stock after the report, according to FactSet. Of the 26 analysts tracked by FactSet who cover Peloton’s stock, 23 have buy ratings, two have hold ratings, and one has a sell rating. The average price target listed is $110.08.
Peloton had the largest short interest among stocks in the domestic leisure products sector, with $492 million as of Sept. 10, according to S3 Partners, a financial data and analytics company. Shorts were down $575 million in mark-to-market losses so far this year, net of financing.
Peloton shares have rallied more than 200% so far in 2020 as the S&P 500 SPX, +0.74% has gained 3.8%.
