Peloton Reports Stationary Earnings; Uphill Battle Remains

At-home fitness equipment company Peloton Interactive, Inc. (PTON) has had its fair share of headlines over the last week. After rumors of a possible acquisition by Apple (AAPL), Nike (NKE), or Amazon (AMZN) propelled the firm up over 23% in a day, investors were left wondering whether or not the company is healthy enough to continue on its own. Now, PTON has released satisfactory earnings and confident sentiment seems to have solidified.  

In addition to its earnings, Peloton announced major senior executive changes, including members of its board and CEO, as well as its plan to remove about 2,800 of its employees. The reshuffling was received well by investors, boosting the stock up about another 21% by the end of the day.  

After taking these recent developments into consideration, Scott Devitt of Stifel Nicolaus published his bullish report on the stock. He was encouraged by PTON’s in-line earnings and its plans to considerably reduce capital and operational expenditures, which are expected to save about $800 million by 2024 and improve the overall cost structure of the company.  

Devitt rated the stock a Buy, and assigned a price target of $45. This target indicates a possible 12-month upside of 24.34%, as of intraday trading at 10am EST Wednesday.  

Despite the executive shake-up and decent earnings, Devitt did acknowledge the persistently slowing demand for Peloton’s products and its “ongoing operational challenges.” The company has been battling declining confidence in its business model, a re-opening economy that brings people away from their home gyms, and safety concerns about its products. 

Writing in regard to its quarterly performance, Devitt noted that “gross margin contraction reflects headwinds from reduced demand, higher commodity costs, elevated freight rates, and the price decrease in the original Bike product.” 

While price action in the near-term appears choppy, Devitt is concrete in the long-term projections for the company. Customer churn was down year-over-year, and PTON’s paid digital subscriptions improved 37.9% over the same period. The analyst asserted that the firm is well-poised to continue taking market share in the fitness equipment industry.  

Peloton’s weak share price action over the last year is seen by Devitt as largely a positive attribute. He summarized that the “current valuation represents an attractive risk/reward setup and look to new product introductions and market expansion as drivers of long-term growth.” 

On TipRanks, PTON has an analyst rating consensus of Moderate Buy, based on 13 Buy, nine Hold, and two Sell ratings. The average Peloton price target is $46.77, suggesting a potential 12-month upside of 27.93%. As of 10am EST Wednesday, PTON was trading at $36.56 per share.  

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