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UBS raises Peloton price target but remains neutral on the stock

UBS analysts led by Eric Sheridan raised their price target on shares of Peloton from $85 to $58, but kept their 'neutral' rating on the stock. The firm sees Peloton as a business "that is poised to con't to capitalize on shifting consumer behavior toward more in-home and health safety workout regimes." The Final Round panel discusses the call.

Video Transcript

JEN ROGERS: Peloton is our "Call of the Day." Peloton had been at some 13% in the premarket, and now we're looking at red arrow on Peloton. It's losing steam here, now down almost 4%. So our "Call of the Day" on Peloton following those financial results coming out yesterday, we've got UBS coming in, raising the Peloton price target from $58 to $85, but they keep their neutral rating on the stock. And it's kind of interesting, because UBS actually in July, downgraded shares of Peloton saying, oh, well, this stock has doubled. We don't see a ton more runway here for them. It's as good as it can get. Of course, the stock has gone up since then quite nicely, thank you very much.

But you read the note and I think actually, they actually like the stock a lot in here. But it's a question of how stretch this valuation is. How many more people need to get a bike right now? Dan Roberts, Peloton, you've been following it. UBS, do you see where they're coming down here with the price target going up but still saying, you know what, you don't need to buy it. Take it or leave it, it's neutral.

DAN ROBERTS: Well, Jen, I feel like there's just some fear here about being too, too bullish on Peloton, and some cautiousness. But it's funny, you say how many more people really need to get the bike. My take here on the stock and all the many, many Peloton notes we've discussed over the last three months is, well, how many more incredible results do analysts need to see to really not hold back their bullishness anymore? I mean, I'm glad you mentioned that UBS had recently downgraded, and they said that the stock just got too high. Of course, in the short term they've been wrong.

But similarly, I don't remember if it was UBS or someone else, but do you remember a note that we discussed earlier in the pandemic when Peloton was first seeing that big sales bump in its bikes, thanks to the pandemic? We discussed a note where the analysts said well, we're worried about a pull forward in demand. I mean, everyone's going to buy the bikes now, but might it just be a temporary spike that misleads us and then it dies off. Well, I don't think so. I mean, look at the earnings report last night. The 100% rise in sales, fine. That was not surprising. First profitable quarter, great, but also not surprising.

But also, Peloton indicating that it expects a big growth in its digital subscription business even into 2021. And so even if you think people who have bought the bikes amid the pandemic have already bought them and that's it, I think there's reason to be bullish about the services, the classes, the people who are doing, Peloton classes without even owning the bike. And then add to that, we just had this week the price cut with one of the bikes. So that's not quite what people have anticipated or hoped for of a much cheaper cost option, because I still think the cheaper of the bikes is not that cheap.

But they're doing the same with the treadmill. They're keeping the current model of the treadmill at the current price, but they're soon to put out, according to reports, a lower cost treadmill as well. So I think they're starting to cover all the bases here. I don't think that waters down the brand. And I don't see any good reason to be convinced that you're not going to see the bikes continue to sell like hotcakes into 2021, even post pandemic. So it's interesting. I mean, the stock got so high that you know you sort of have to discount what's happening right now today as we discuss the larger picture here with Peloton. But I just think it sounds like UBS is starting to see the writing on the wall, but it's still just a little worried about valuation.

MELODY HAHM: And of course, on our program yesterday, Seana, I know you had Wedbush Securities analyst James Hardiman, who essentially was saying they can't even keep up, and they're bullish. So the company itself is exceeding their own self-proclaimed extremely bullish expectations. So it is sort of like OK, the analyst community feels that it has run all the room that it could go, but clearly, the company is sort of proving them wrong. I think one line from the conference call yesterday with John Foley, the CEO that our own Brian Sozzi parsed through and picked out, is very important here.

Peloton may start selling used bikes soon. And you may be able to rent a bike and treadmill one day. So who knows what the timeline looks like, but that is a very genius way to figure out how to get that accessibility component into play. Because Dan, as you point out, these lower price points are still in the thousands of dollars. So it's not particularly compelling. I actually wouldn't classify it as accessible luxury. It's luxury. So if this sort of avenue, if this revenue stream can be developed, can be robust as old product lines are kind of phased out and can be rented out, I think this could potentially be a huge additional boon to the business.

SEANA SMITH: It certainly does, Melody, and that really will boost obviously, their TAM, which has been such a focus here on a lot of these recent notes that we've been talking about. Yeah, we have UBS today, we were talking to Wedbush yesterday, but that's also been mentioned from JPMorgan and GMP just in terms of what Peloton can do, what it should do in order to increase its market share and be able to get access I guess, to more people. So obviously renting bikes, and also used bikes is one way to do it, and a very smart way to do it.

But I also want to go back to one thing that James Hardiman of Wedbush was saying yesterday, because I also thought it was very interesting. And it kind of gives into that tiered product structure that we've been talking about. And he was really reinforcing the importance of that cheaper treadmill. And I think that that's something that a lot of times gets lost in it or people, when they think of Peloton, they still immediately think of the bike product. But he was talking about how that TAM argument is so valuable here when it comes to the treadmill, and the fact that they basically slashed their treadmill almost in half in terms of price.

If it really starts to resonate with the consumer, he actually thinks that the treadmill business could be as big or even bigger than its bike business. So that's something certainly interesting to keep in mind just in terms of its future growth over the next couple of years. But going back really quickly just to this call, I mean, it's a pure just valuation call. And that was clear just from one of the first couple lines of this note. Because it goes without talking about I think the big question, and Dan, you mentioned this too, is just how much of this growth is pulled forward. I know you think that the demand is going to continue.

But I think that is a big question amongst analysts' minds right now. They're trying to figure out just how much demand we will have in a year or two years out from this point. But the stock is up almost 300% in the last six months, up over 280% trading at five and a 1/2 times at 2022 revenue. So I think right now at least, the bull case scenario for UBS is priced in, and that's why it's neutral. And the price target though at $85 bucks a share, which is basically in line with where it's trading right now.

JEN ROGERS: It is interesting on the UBS price target action. As you say, their bull case at $126 and their bear case is $47. Can you imagine six months ago when we were talking about Peloton and what happened with the IPO and everything that that bear case is now $47 on Peloton?