Analyst Lifts Price Estimate for Peloton and We Could Be Buyers

Remember Peloton PTON? Readers probably should. 

We recently "gave up" on the stock and exited the name in three tranches at an average price of $6.49. That trade, overall, with a net basis of $5.73, turned a profit of 13.3%. The stock has been volatile since our sale, trading as low as $6.12 and as high as $7.16 before closing on Tuesday afternoon at an almost gnarly $6.10. Someone had something nice to say about Peloton. Well, sort of nice.

On Wednesday morning, UBS analyst Arpine Kocharyan, who is rated at three stars out of five at TipRanks, upgraded Peloton Interactive to a "Buy" from a "Neutral," which is considered to be a hold-equivalent. Kocharyan also increased her target price from $7.50 to $11. Why? Kocharyan wrote, “While we see subscription price increases anchoring near-term top line growth, we might also see underlying net subscriber decline stabilizing into FY′26, outside of price increase driven churn."

The analyst then added, "While that inflection in connected fitness subs is not entirely clear to us yet, we are seeing better data trends for Peloton in terms of traffic and active users. Interactive visits for May improved to flattish YOY (year over year) from down -11% in May, while active users have turned positive in May/June after (having shown) declines since (the) beginning of the year.” 

Kocharyan estimates a price increase of 11% to 12% for the firm's connected fitness subscription product. That, in the analyst's opinion, could "drive roughly $90M - $100M of annualized revenue uplift, net of impact from higher churn."

Earnings

Peloton will release the firm's fiscal fourth quarter financial results the morning of Thursday, August 7. Wall Street is currently looking for a GAAP EPS of -$0.05 on revenue of $580 million. This would compare to $0.08 for the year-ago period, while reflecting a year-over-year contraction in revenue generation of about 9.8%. Wall Street is a bit split on its perception of how the quarter ended in late June went. Of the 13 analysts I can find who cover the name, six have revised their earnings estimates for the quarter higher since the start of the period, while six have revised their numbers lower and one analyst sat on his hands.

My Thoughts

Readers should know that despite running a business that has appeared to be in decline, Peloton has generated free cash flows of $237.3 million for the 12 months ended on June 30 and $94.6 million for the three months ended June 30. Better than you expected, isn't it?

On top of that, the balance sheet isn't bad either. The firm ended the June quarter with current and quick ratios of 1.65 and 1.39, respectively, with $914.3 million in cash on the books, $208.2 million in shorter-term debt and $1.291 billion in long-term debt.

Not fortress-like, but also not like the firm is about to fold. Oh, and the firm also had $90.2 million in current unearned revenues on the books. That's not a true financial obligation unless the firm fails to deliver the goods and/or services owed. This balance sheet is far from being a disaster.

The Chart​

​Readers will see that Peloton has, in recent weeks, developed a triple-bottom pattern of bullish reversal with a $7.20 pivot. Readers will also see that when drawing up a Fibonacci pricing model that a 38.2% retracement of the entire late 2024 into early April sell-off comes to about $7.00. Above that, the 200-day SMA stands at $7.40.

These are all key levels. The stock will likely take back its 50-day SMA on Wednesday morning. If it also takes and holds the pivot created with the triple bottom, I think I have to re-initiate the name ahead of earnings. We would then use the 200-day line as our new pivot but let's wait on that to see how the stock performs in heavy traffic today. I am not yet back in this name, but it has once again made itself interesting.

At the time of publication, Guilfoyle had no positions in any securities mentioned.