With Peloton, “Patience Required.” Deutsche Bank starts coverage on purchases.
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Shares of
Peloton Interactive
fell on Friday even after Deutsche Bank started covering the share on Buy despite the recent falls.
In addition to the Buy rating, analyst Chris Woronka set a price target of $ 76, which represents an upside of almost 80% from the stock’s closing price on December 1 of $ 42.25.
“While it’s never fun to run a buying report with a kind of ‘patience-demanding’ star, that’s exactly what we’re doing here,” Woronka wrote.
Exercise bike manufacturer (ticker:
PTON
) became a favorite stock in 2020 when the coronavirus pandemic increased sales of home exercise equipment. Since then, it has lost favor among Wall Street bulls as the company has struggled with production problems and people have returned to gyms.
Peloton shares fell 4% to $ 42.63 on Friday. The shares have lost around 71% this year.
Disappointing earnings in the third quarter sent the stock in a downward spiral in November, bringing it to its lowest levels since July 2020 and leading to a series of price target landslides. The peloton reported a net loss of $ 376 million, or $ 1.25 per share, in the last quarter, and performed worse than the loss of $ 1.10 per share expected by Wall Street.
The peloton now expects to end the financial year 2022 with 3.35 million to 3.45 million connected training subscribers, down from an earlier forecast of 3.63 million. The outlook for the fiscal year’s revenues varies from $ 4.4 billion to $ 4.8 billion, down from an earlier forecast of $ 5.4 billion.
Of the 31 analysts who covered the stock, 16 rated it for a buy, 12 rated it for a hold, and two rated it for a sale.
In its note, Woronka noted that the market views fitness stocks as an “either / or” sector – either people return to full-time gyms or continue to work out at home.
“It is a simplified view of the world; We believe that the hybrid work model also extends to fitness, and that PTON has a lot of speed to recover operationally, he said.
Woronka brushes off fears that the training trend at home was just a “stick”, pointing to Peloton’s strong growth path before the first Covid case was reported.
While investors have been intimidated by lower sales volumes for the company’s core bicycle product and the recent recall of the Tread Plus machine, Woronka sees several benefits in the coming year. Peloton’s new, cheaper tread model can surpass the Bike units in a few blocks, he said. He also expects the company’s subscription revenues to grow rapidly by 2024.
He also outlined other growth opportunities for the company, such as taking advantage of the corporate fitness market and expanding into international markets to continue to grow.
The brand also has a cult-like following that it can take advantage of to “expand the content platform to new, adjacent media that do not necessarily fit nicely into the traditional training bucket,” Woronka wrote. Peloton’s churn rate is extremely low, hovering below 1% for all periods the company has revealed it all the way back to 2019.
“We think that if the stock can actually regain its footing for basic reasons, it has quite a lot of room to run,” he said.
Write to Sabrina Escobar at sabrina.escobar@barrons.com