Peloton Has Analysts Breaking a Sweat Before February Earnings

Shares of the exercise equipment maker slid 4.9% following a downgrade to sell at UBS. “While we remain positive on the LT outlook, we downgrade PTON to Sell to reflect risk/reward skewed to the downside from current levels,” the firm said in a note to clients. UBS did, however, hike its target on the stock to $124, up from $115.

Peloton’s stock, which has more than doubled since July, has analysts perplexed. Most have it rated a Buy, or the equivalent, but claim they foresee the stock trading for less than the current price.

UBS analyst Eric Sheridan assisted in pushing shares lower on Tuesday, slashing his rating on the stock to a Sell. He did say he was partial to Peloton’s long-term potential, but feels the price has already baked in the sky high expectations on the company’s results going forward.

Wednesday, Oppenheimer analyst Jason Helfstein retorted with two scoops of optimism in his coffee, sending the stock back to green territory. He articulated in a research note that he believes further upside for Peloton is still possible, maintaining an Outperform rating and lifting his target for the stock price to $185 from $140.

The equipment Peloton makes is expensive, between $1,900 and $2,945 for a connected spinning bike and between $2,495 to $4,865 for a connected treadmill. Bikes and treadmills give you access to Peloton’s renown connected fitness classes for an extra $40 per month.

Helfstein expects the company to bag more subscribers than Wall Street expects in the near term as fitness enthusiasts vacate their traditional gym memberships. Helfstein anticipates that U.S. gym memberships will see a 9% churn rate—the percentage of consumers cancelling subscriptions—which could be a chance for Peloton to add members.

He’s still bullish on the company’s December deal to gobble up equipment maker Precor. The agreement ought to help the company deal with shortages that have resulted from the spike in demand due to last spring’s shutdown, and the continued closures of gyms.

What’s more, the deal can create up-selling possibilities by making use of Precor’s existing ties to commercial consumers. Precor produces equipment for gyms, hotels, universities, and multifamily residences.

Right around Christmas, Peloton began offering 60-day free trials of its app. That was twice as long as the standard free trial it typically provided customers. It’s no coincidence this occurred immediately after the launch by Apple of its Fitness+ app, which gives customers a three-month free trial. Apple also charges only $9.99 per month for a subscription, which immediately makes it a rival that Peloton and its investors must consider.

Helfstein thinks the company ended the fiscal Q2, which ended in December, with 1.68 million connected fitness subscribers. These subscribers pay $39 a month to access classes that assimilate with Peloton’s equipment. His estimate is a bit higher than the Street’s consensus, which calls for 1.65 million subscribers.

“We believe Peloton is redefining fitness, based on its convenience and relative value vs. other premium offerings,” Helfstein noted. “As the company continues to quickly grow its subscriber base, we forecast subscription contribution margin will exceed 70%, with churn remaining minimal.”

Though 24 of the 28 analysts have the stock at a Buy or equivalent ratings, the mean price target is $153.62. That’s below recent levels, meaning analysts may soon decide to raise their targets or lower their Buy ratings to Neutral.

Peloton’s set to report earnings in February. Investors will be watching closely—especially for the company’s outlook, given that performance figures for coming quarters will begin to be compared with those from when the pandy had already boosted demand.

$PTON YTD

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