Scoop up Peloton Shares on Discount, Says Analyst

Last week was a newsworthy one for Peloton (PTON). The home exercise specialist hogged the headlines after recalling not only the Tread+ but also its other treadmill, the Tread. The move amounted to a U-turn after the company previously refuted a U.S. Consumer Product Safety Commission’s (CPSC) report that claimed the Tread+ was unsafe following 39 injury incidents involving the product in addition to one child’s death.

The fact the announcement came only a day before the release of Peloton’s March quarter (F3Q210) earnings added an extra layer of spice to the announcement of the financials.

While the fallout from the saga will have to be dealt with, Peloton’s latest quarterly statement suggested the company has enough in reserves to please those taking the long-term view.

Revenue increased by 140.2% year-over-year to $1.26 billion while also handsomely beating the Street’s estimate by $140 million. EPS of -$0.03 came in ahead of the Street’s forecast by $0.10. Paid Digital Subscriptions surged by a hefty 404% to around 891,000, while Connected Fitness Subscriptions increased by 135% to over 2.08 million. Looking to FQ4, Peloton expects the treadmill recall to cost the company $165 million.

Possibly using an unfortunate turn of phrase, Canaccord analyst Michael Graham calls the quarter “full of moving parts.” However, Graham is full of praise for Peloton, and hails the company’s “impressive” business momentum and “better-than-expected profitability.” Moreover, looking at the bigger picture, the analyst thinks the recent issues could provide investors with an alluring opportunity.

“While the Tread & Tread+ recall news is causing volatility, the quality of management’s response to the issue is reassuring, with appropriate reserves and extra expenses built into guidance to ensure a robust, brand-supporting response,” the 5-star analyst said. “The next two quarters take us through the initial response period for the recall and the seasonally slow summer months, and we suspect that at some point during this time period investors should have a compelling opportunity to purchase an enduring, market-defining subscription business at a discount from recent highs.”

Further down the line, from F2Q22 onwards, Graham counts “greater manufacturing capacity, meaningful marketing spend, and what should be an expanded product offering to help build leadership across cardio and strength,” as reasons to believe strong long-term growth is in the cards.

In tandem with low churn and high operating leverage, Graham believes this growth makes Peloton “an attractive growth investment vehicle.”

To this end, Graham rates PTON shares a Buy along with a $150 price target. The figure is an attractive one for investors, implying ~71% potential gains. (To watch Graham’s track record, click here)

Turning now to the rest of Street, where most are on the same page. The stock’s Moderate Buy consensus rating is based on 17 Buys vs. 4 Holds and 1 Sell. While not quite as exuberant as Graham’s objective, the $134.32 average price target suggests upside of ~54% in the year ahead. (See PTON 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.