Fresh off its best single-day percentage gain on record,
stock has bounced back to levels last seen in early May. The latest earnings from the maker of connected fitness equipment has Wall Street buzzing about a turnaround, though the stock’s surge has set a high bar for the quarters to come.
Peloton stock (ticker: PTON) was up 2.7% to $16.80 in Thursday trading after rising more than 26% on Wednesday. It would be Peloton’s highest close since May 5, when it ended at $17.01.
Credit Suisse analyst Kaumil Gajrawala, who rates Peloton at Neutral with a below-market $12 target price, wrote Thursday that Peloton’s report showed the firm’s most important task, break-even free cash flow, was on the horizon.
“The journey has reshaped Peloton to look different than the business it
once was—old evaluation metrics no longer matter,” Gajrawala wrote. “We find these developments positive, but it is still too soon to tell if the new model and economics can support both cash flow and growth—and what it’s worth.”
Peloton was among the firms that overextended itself trying to keep up with explosive pandemic-driven demand. The firm was forced to scale back on manufacturing plans and lay off employees last year.
Since Barry McCarthy took over as CEO roughly a year ago, the firm has experimented with equipment subscriptions and price changes. Peloton also raised the price of its monthly connected-fitness membership to $44 a month. Such a subscription is needed to access classes and most features on Peloton bikes and treadmills. The prior $39-a-month price had been described by prior executives as “sacred,” “sacrosanct,” and “our golden goose.”
BMO Capital Markets analyst Simeon Siegel, who rates Peloton stock at Underperform, raised his price target to $9.50 from $8 following the report. While revenue beat expectations, he noted holiday promotions weighed on margins. Siegel thinks the firm’s cuts have removed existential risks, but optimism may be priced in the shares already.
“Recognizing that CEO McCarthy has been successfully removing fixed costs, we believe the company should focus on bear-hugging its brand loyalists, as we fear churn will grow as subscribers age,” Siegel wrote.
Evercore ISI’s Shweta Khajuri raised her Peloton target price to $18 from $11, but kept an In Line rating. She thinks the firm’s initiatives are the right way forward, though she thinks truly turning things around will take multiple quarters, or possibly years.
“We will remain on the sidelines until we see clear inflection points in the business,” she wrote. “We prefer assets with stronger fundamentals (attractive growth, healthy [free cash flow], and [earnings before interest, taxes, depreciation, and amortization] margins, and clear growth catalysts).”
Khajuri adds that it would take sustainable improvement in treadmill and bike sales, stability in lapsed subscriptions, and meaningful margin improvement for her to be more bullish on the stock.
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