Peloton Interactive Inc. (PTON) saw its stock surge nearly 10% on Monday, although it later trimmed some of those gains in response to a significant upgrade from Bank of America (BAC).
The highly regarded Bank of America analyst Curtis Nagle has elevated his stance on Peloton’s stock to a “Buy” rating, notably boosting the price target nearly threefold from $3.75 to $9. This optimistic outlook is grounded in the fitness company’s recent earnings performance, growing confidence in its newly appointed CEO, and its potential for what he describes as “substantial earnings upside.”
By midday, Peloton shares were trading at $7.65, reflecting a 5.5% increase.
The upward movement in Peloton’s stock on Monday is part of a broader multi-week rally, with shares having soared approximately 70% over the last month. This surge indicates increasing investor confidence in Peloton’s turnaround strategy, which notably includes a major marketing pivot.
In its recently released fiscal first quarter earnings report for the period concluding on September 30, Peloton exceeded market expectations. Its adjusted earnings came in at $0 per share, significantly outperforming the anticipated loss of $0.16, while revenues reached $586 million, surpassing the forecast of $573 million, as per Bloomberg consensus estimates. Furthermore, the company announced the appointment of its new CEO, Peter Stern, co-founder of Apple’s Fitness+ and a veteran of Ford (F), following an extensive search. Stern is set to assume leadership in January 2025.
In the wake of Peloton’s strong quarterly earnings, several financial institutions, including JPMorgan (JPM), Bernstein, BMO Capital, Macquarie, and Truist, along with Bank of America, have elevated their price targets for the stock. Analysts have acknowledged Peloton’s concerted efforts to enhance profitability while controlling capital expenditures. Nagle from Bank of America has noted that Peloton’s new CEO “ticks many boxes.”
Bank of America estimates Peloton could surpass $300 million in earnings before interest, taxes, depreciation, and amortization (EBITDA) for the fiscal year 2025, contrasting with the company’s own more conservative guidance of $240 million to $290 million.
Peloton shares have experienced a steep decline from their former highs around $150 achieved in 2021. This sharp rise during the pandemic, driven by increased demand for home fitness solutions, was followed by a significant downturn as user engagement waned, resulting in a total subscriber loss of about 400,000 from 2022 to 2024. In both 2022 and 2023, Peloton’s annual earnings fell short of Wall Street analysts’ expectations.
Analyst Aneesha Sherman from Bernstein expressed optimism for Stern’s impact on the company’s subscription growth trajectory, stating he “will hopefully provide much-needed direction for the Company’s subscription growth,” while maintaining a Market-Perform rating on the stock.
Overall, analysts monitoring Peloton’s performance anticipate shares to stabilize around $8 over the course of the upcoming year.
“While Peloton is making strides in optimizing its cost structure and improving hardware unit economics, it continues to struggle with growth,” Sherman noted in her commentary dated November 1.
“The incoming CEO inherits a business that is stable and free cash flow positive, along with a significantly leaner operational framework. However, he must outline a strategy conducive to sustainable long-term growth — this is crucial for the next significant upturn in the stock’s performance, and it’s what we are patiently awaiting to see before adopting a more optimistic stance.”
Nagle from Bank of America indicated, “[U]nder a new CEO, we see a substantial opportunity for additional cuts in operating expenses, improved hardware margins, and potential subscription price increases.”
Truist analyst Youssef Squali remarked, “With various initiatives currently in progress, management is progressively recalibrating PTON for profitable growth, though clarity regarding the pace of this growth, long-term margins, and the overall total addressable market remains limited.”
Laura Bratton is a reporter for Yahoo Finance. Follow her on X @LauraBratton5.
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**Interview with Financial Analyst, Jane Smith, on Peloton’s Recent Stock Surge**
**Editor**: Welcome, Jane! Thanks for joining us today to discuss the recent developments with Peloton. We’ve seen a significant rise in their stock after a bullish report from Bank of America. What are your thoughts on this?
**Jane Smith**: Thank you for having me! Yes, Peloton has made impressive strides this week. The stock surged nearly 10% following Bank of America’s upgrade to a “Buy” rating and their substantial price target increase from $3.75 to $9. This shift reflects growing investor confidence in Peloton’s future.
**Editor**: What do you think contributed to Bank of America’s optimistic outlook?
**Jane Smith**: There are a few critical factors. Firstly, Peloton’s recent fiscal first quarter earnings exceeded expectations, showing a clear path towards profitability. They reported adjusted earnings of $0 per share versus an anticipated loss, and their revenue growth also beat forecasts. Additionally, the appointment of Peter Stern as the new CEO is a big deal—his background in fitness and experience at major companies like Apple could rejuvenate Peloton’s strategy.
**Editor**: It seems like the market is responding positively to Stern’s hiring. How important is leadership in situations like these?
**Jane Smith**: Leadership is crucial, especially when a company is trying to regain its footing. Analysts like Aneesha Sherman have noted that Stern’s vision could directly impact Peloton’s subscription growth, which has stagnated recently. A strong leader can reinvigorate the company’s direction and potentially lead to better engagement with users.
**Editor**: Speaking of engagement, Peloton has faced subscriber losses in the past couple of years. How does the company plan to address this issue?
**Jane Smith**: Peloton is pivoting its marketing strategy to better connect with potential users, which is essential. By broadening their appeal—not just targeting die-hard fitness enthusiasts but also casual users—they hope to rebuild their subscriber base. Their focus on cost control and profitability also suggests a more sustainable growth approach moving forward.
**Editor**: With such a drastic decline from their pandemic-era highs, do you think Peloton can fully recover?
**Jane Smith**: It’s certainly a possibility. Analysts, including those at Bank of America, believe Peloton could surpass significant EBITDA figures in the next fiscal year. However, it will depend on their execution of the new strategies and how well they adapt to changing market dynamics. Consolidating any gains in confidence will be key for the future.
**Editor**: Thank you, Jane! It will be interesting to see how Peloton’s journey unfolds.
**Jane Smith**: My pleasure! I look forward to seeing how they progress.
