Are the Wheels Coming off for Peloton? Analyst Weighs In

Peloton (PTON) reacted angrily to the findings of a U.S. Consumer Product Safety Commission (CPSC) in April. The commission warned users to stop using Peloton’s treadmill, the Tread+, after the death of a child in an incident involving the product. There were 38 other incidents of injuries involving the Tread+, the CPSC found.

At the time, Peloton issued a feisty retort, but now the company has performed an about-face and has sent out recalls for not only the Tread+ but its other treadmill, the Tread, too. The former, due to children and pets being at risk from getting sucked underneath, and the latter from the possibility the touchscreen could detach.

“While the Tread+ recall was not entirely unexpected,” said Raymond James analyst Aaron Kessler, “The newly announced Tread recall was unexpected.”

Peloton has apologized for its earlier reaction and has said it will provide customers a full refund or “other qualified remedy.” Kessler calls Peloton’s initial refute of the CPSC claims “misguided.” The analyst also believes the recalls “likely call into question Peloton’s hardware quality control efforts.”  

That said, Kessler thinks Peloton can “remedy” both Tread issues and along with expecting “generally solid results” when the company reports March quarter earnings today (Thu, May 6 AMC), sees several reasons to remain upbeat about its prospects.

These include, “1) large market opportunity that is accelerating and expanding due to COVID-19; 2) Peloton pioneered the connected fitness market, and investments in products, content, brand, and community provide competitive moats; 3) attractive unit economics including falling customer acquisition costs and low churn; 4) we expect 20% plus LT EBITDA margins through operating efficiencies and marketing leverage.”

However, while positive long-term and noting the risk-reward is becoming more favorable, given the “Tread related near-term headwinds and possible softening of demand trends as social distancing measures ease,” Kessler stays on the sidelines for now with a Market Perform (i.e., Hold) rating. The 5-star analyst has no fixed price target in mind for the shares. (To watch Kessler’s track record, click here)

So, that’s Raymond James’ view, what does the rest of the Street make of the latest PTON developments? The outlook remains upbeat. The stock boasts 13 Buys and 5 Holds, culminating in a Moderate Buy consensus rating. What’s more, the average price target is a bullish one; at $157.75, the forecast is for one-year upside of 91%. (See Peloton stock analysis on TipRanks)

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Disclaimer: The opinions expressed in this article are solely those of the featured analyst. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.