DJ Peloton Stock Took a Hit on Tuesday. It's Coming Back Today. -- Barrons.com
By Connor Smith
Peloton Interactive stock, up by more than double in the past 6 months, has analysts scratching their heads. Most rate it at Buy, or the equivalent, but say they expect the stock to trade for less than the current price.
UBS analyst Eric Sheridan sent the shares lower on Tuesday, lowering his rating on the stock to Sell. He said he liked Peloton's long-term prospects, but felt the price already reflects high expectations for the exercise-bike company's results in coming quarters.
Wednesday, Oppenheimer analyst Jason Helfstein weighed in, sending the stock back up. He said in a research note that he still sees upside for the shares, maintaining an Outperform rating and lifting his target for the stock price to $185 from $140.
The stock was up 3.2% to $154.98 in early afternoon, while the S&P 500 index was up 1.5%.
Helfstein said he expects the company to bring in more subscribers than Wall Street expects in the near term as fitness enthusiasts cancel their memberships to traditional gyms. Helfstein expects U.S. gym memberships to see a 9% churn rate -- the percentage of consumers cancelling subscriptions -- which could be an opportunity for Peloton to add members.
He also likes the company's December deal to buy equipment maker Precor. The agreement, he says, should help the company deal with shortages that has resulted from the surge in demand sparked by last spring's shutdown, not to mention continued closures of gyms.
Beyond that, he said, the deal can create up-selling possibilities by making use of Precor's existing ties to commercial consumers. Precor provides equipment for gyms, hotels, universities, and multifamily residences.
Helfstein forecasts the company ended the fiscal second quarter, which ended in December, with 1.68 million connected fitness subscribers. Such subscribers pay $39 a month to access classes that integrate with Peloton's equipment. His estimate is a bit higher than Wall Street's consensus, which call for 1.65 million such subscribers, according to FactSet.
"We believe Peloton is redefining fitness, based on its convenience and relative value vs. other premium offerings," Helfstein wrote. "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 recently listed on FactSet have Buy or equivalent ratings, the mean price target is $153.62. That is below recent levels, meaning analysts may soon decide to raise their targets or lower their Buy ratings to Neutral.
Peloton's next earnings report is expected 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 pandemic had already lifted demand.
Write to Connor Smith at connor.smith@barrons.com
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January 20, 2021 15:38 ET (20:38 GMT)
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