Peloton (NASDAQ:PTON) has proven to be one of the darlings of the pandemic. Offering a way to continue to work out while never actually leaving your house, it's small wonder a lot of people suddenly became interested in Peloton. This is a point not lost on analysts, and recent improvements from that corner helped drive some decent new gains.
Fresh Coverage for a Changing Company
One of the biggest bits of news for Peloton lately was Credit Suisse, who started coverage of the company and started it off in grand style. Credit Suisse rolled out an immediate “outperform” rating, via its analyst Kaumil S. Gajrawala, and slapped a price target of $164 on the company. That's not a Street high, and it actually isn't within 20% of some of the highest targets—JPMorgan Chase's $200 seems to be high-water right now—but it is still a solid showing, especially given that Peloton trades at $120.35 as of this writing.
Gajrawala pointed out that Peloton is now an established brand, and has already achieved substantial success with a very narrow focus. Better yet, it managed to do all this while facing some substantial supply constraints, which it's been actively addressing for some time. Thus, Gajrawala expects the company to evolve from here, adding new and complementary product lines, new content, and in general, providing a value proposition for its users and its investors alike.
However, this recent rollout was counterbalanced somewhat by a report from Evercore, whose analyst Shweta Khajuria dropped its rating from “outperform” to “in line,” and also lowered its price target to $125 from its original $160. Khajuria noted that Peloton has already seen better than a four-fold run-up over the last year, and suggests that some downside risk might be a part of the picture for 2021.
Analysts Are Backing the Truck Up
If you were looking to invest in a company with almost outrageously bullish analyst support on its side, our latest research makes it pretty clear you need to invest in Peloton. Peloton has had a consensus “buy” rating since September of 2019, our research finds, when it was elevated from merely “hold”. The ratios, meanwhile, have steadily improved.
A year ago, the company had 21 “buy” ratings to its credit, along with three “hold” and two “sell.” Six months ago, that improved to 24 “buy” ratings, along with just two “hold” and two “sell.” That mix held steady three months ago, which leads us to today, where the company now has 25 “buy” ratings to go along with the two “hold” and the two “sell.”
The price target, meanwhile, runs the gamut. While the current average is sitting at $149.50, the current low of $45 and the high of $200 suggests there are a lot of places for this stock to go. Interestingly, that $45 is not particularly stale; it comes from BMO Capital Markets, who put it there back on February 5 of this year. That was an upgrade from its original price target of $33, which suggests that BMO is waiting for a catastrophe that may never come.
Credit Where Credit is Due
There is room for some pessimism when it comes to Peloton. When we talked about it a couple weeks back, we noted that the company ramped up production to help it shrink the wait times that people had to endure just to get their hands on a Peloton. That was all fine and well, but it also opened up serious opportunity for competitors to get into the space and ultimately leave Peloton all dressed up with no place to go, and one big bill to pay for all the dressing up it did.
It's also worth noting that Peloton had a big run up in 2020, as it was well on its way to being a pandemic darling that left people able to work out at home instead of going to gyms, which spent a lot of 2020 actively fighting government-imposed restrictions on their ability to do business. However, a lot of those restrictions have finally faded away, which means that customers who want to return to normal on their workout routines can do so, meaning less need for a Peloton.
It's a safe bet that Peloton has seen these problems coming, and is working accordingly; the more Peloton units it can get out the door, the better positioned it will be to make money on complementary offers, like new streaming workout routines and the like. So it's desperately trying to front-load its possibilities as much as possible, and that's likely the best route it can take.
Yes, there's the potential for some pullback; the streaming subscriptions start at $12.99 a month and go up to $39 a month, while the hardware runs closer to $3,000 a unit. That's a big drop; even the top subscription will generate just $468 per year, meaning Peloton needs a subscriber to stay for better than six years to match the revenue of the hardware. Still, with new people buying Peloton hardware, and potentially continuing to generate revenue for some time, Peloton could be in a very enviable position, even with gyms reopening throughout the US.
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