Shareholders of Peloton (NASDAQ:PTON) have experienced a rough 2022 thus far, with the stock down more than 30% year-to-date. Furthermore, the departure of founder and former CEO John Foley certainly hasn’t given investors a boost of confidence. However, PTON stock is up more than 9% today after a Bernstein analyst initiated coverage on the at-home fitness provider.
Why Is PTON Stock Up Today?
Analyst Aneesha Sherman initiated coverage on Peloton with an “outperform” rating and a price target of $40. The analyst cited “a new CEO, a new supply chain strategy, and a tighter belt on operating expenses” as potential positive catalysts. In addition, Sherman acknowledges Peloton’s stock decline, but also states Bernstein believes “the worst-case scenarios are already priced in.”
“We think the engaged user base, sticky subs revenue streams, and growing TAM [total addressable market] are markers of a healthy underlying business that are hard to recreate,” explained Sherman. “With these fundamentals, better management around key decisions such as supply chain, store growth and pricing can drive real upside.”
In terms of valuation, Sherman utilizes comparable company analysis. Based on industry peers, the analyst concludes that Peloton should trade at a 3X to 4X multiple of enterprise value (EV) to sales. As a result, the analyst used the lower-end range of a 3X EV/sales multiple to determine her price target of $40.
Therefore, with Sherman’s price target in mind, let’s take a look at how the rest of Wall Street views Peloton.
More Wall Street Analysts Weigh in on Peloton
- Stifel has a price target of $45. Analyst Scott Devitt raised his price target from $40 after reviewing Peloton’s quarterly earnings. Furthermore, Devitt notes that Peloton is currently undergoing a “company-wide restructuring plan” that is estimated to save $800 million in “annual run-rate cost savings” by fiscal year 2024. While the plan may reduce profitability in the near term, the analyst believes that the plan will benefit Peloton in the long term.
- Morgan Stanley has a price target of $32. Analyst Lauren Schenk believes that a “new regime will optimize the revenue/profit trade-off long-term.” In addition, the analyst calls Peloton the “clear leader in connected fitness” due to its content platform and low churn. However, Schenk is concerned about the medium term, as Peloton is currently undergoing strategic changes. These strategic changes include “equipment pricing changes, subscription pricing, and the evolution of the content platform.” Finally, the analyst adds Morgan Stanley may become more bullish if it can more confidently ascertain Peloton’s three-year outlook.
On the date of publication, Eddie Pan did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
