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'Arguably the hottest brand in home fitness': Wall Street gets bullish on Peloton

Wall Street is ready for Peloton (PTON) to pull ahead of the pack.

More than a dozen firms initiated coverage with bullish recommendations on the stock Monday, after the end of the company’s post-initial public offering quiet period for research coverage.

Consensus analysts were overwhelmingly constructive on Peloton’s prospects, shrugging off the beating the stock has taken in the month since its IPO. Several of these firms served as underwriters for Peloton’s IPO – however, banks are required to maintain a separation between their research and investment banking divisions.

Peloton, a workout equipment-maker and digital fitness subscription provider, priced its IPO at $29 per share, but has failed to crack that level since the stock started trading September 26. It currently trades around $23 per share, down 20% from its IPO pricing.

The disappointing stock performance right out the gate hasn’t quieted some analysts’ enthusiasm for the stock.

“Peloton is arguably the hottest brand in home fitness, with its popular hardware (led by the bike), live-streamed classes, and passionate community,” Cowen analyst John Blackledge wrote in a note. He rates shares of Peloton as Outperform. “As a first mover in the space, the company currently faces few true comps [competitors] that combine its premium hardware, software, content, logistics and community.”

The New York-based company’s business revolves around selling its $2,245 flagship stationary bike and $4,295 treadmill, with subscribers to Peloton’s streamed fitness classes on these devices shelling out an additional $39 per month. These streamed classes are a linchpin to its success, putting the company at the forefront of a “burgeoning connected fitness category,” Blackledge said.

Plus, that recurring revenue stream has the potential to provide a long-term cushion to financial results, other analysts said, especially given the company’s relatively high retention rate thus far. Peloton amassed 511,000 connected fitness subscribers through June since its inception, reporting a churn rate of just 0.65% per month, or around 8% annualized. Bank of America Merrill Lynch analysts said the company could capture 10 million memberships by 2030, assuming it is able to convert some current traditional gym membership-holders to the platform.

A user on a Peloton indoor bicycle (via Peloton)

“Peloton has multiple facets to its business model that leave us constructive: the sale of hardware with affordable financing options, a subscription media consumption product (that promotes usage/fitness while also lowering churn) and creating a sense of community,” UBS analyst Eric Sheridan wrote in a note.

“All three of these elements produce a differentiated platform model that is likely to see wider global adoption as consumers become more aware of the total cost of this offering vs. more traditional fitness business models,” he said.

Sheridan added Peloton could turn a profit on an adjusted EBITDA basis by fiscal 2024, or slightly later than the 2023 target Peloton CEO John Foley suggested in September. And with the stock down by a fifth since its debut, it’s trading “at a discount to high-growth/high-quality peers despite high growth,” Bank of America Merrill Lynch analysts said in a note.

But for now, Peloton’s financials are still bathed in red ink: The company has run at a loss since inception, and most recently lost $195.6 million for the year ending in June, more than quadruple that of last year. Revenue more than doubled to $915 million during the same period.

Amid unprofitability and other potential headwinds, other analysts have been more reserved on the stock. MKM Partners analyst Rohit Kulkarni, whose firm did not participate in Peloton’s IPO, reiterated a neutral rating for the stock, saying he still sees “risk to medium-term revenue expectations, driven by tougher comps and lack of a tangible and incremental product catalyst.”

“While headline (growth-adjusted) valuation appears reasonable, we believe there will be a price discovery process for the company in the public markets,” he said.

Shares of Peloton were up as much as 3.6% around market open Monday. The stock reversed course and fell 3.5% to $22.70 per share as of 10:57 a.m. ET.

Here’s a list of other analyst initiations on Peloton by recommendation and price target, according to Yahoo and Bloomberg-compiled data:

  • Goldman Sachs: Buy, $37

  • Stifel: Buy, $35

  • Canaccord Genuity: Buy, $33

  • SunTrust: Buy, $30

  • Needham & Co: Buy, $30

  • UBS: Buy, $30

  • Bank of America Merrill Lynch: Buy, $29

  • Cowen: Outperform, $34

  • JPM Securities: Outperform, $33

  • Raymond James: Outperform, $32

  • Evercore ISI: Outperform, $30

  • Oppenheimer: Outperform, $29

  • Telsey Advisory: Outperform, $29

  • Baird: Outperform, $28

  • William Blair: Outperform, no price target

  • KeyBanc: Overweight, $32

  • JPMorgan: Overweight, $32

  • Barclays: Overweight, $32

  • D.A. Davidson: Neutral, $29

  • MKM Partners: Neutral, $24

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Emily McCormick is a reporter for Yahoo Finance. Follow her on Twitter: @emily_mcck

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