Telsey Advisory Group adjusted its outlook on Peloton Interactive (NASDAQ: NASDAQ:PTON), raising the price target to $5.00 from the previous $4.00 while maintaining a Market Perform rating on the stock.
The firm cited Peloton's better-than-expected earnings in the fourth fiscal quarter of 2024 and its positive guidance for the fiscal year 2025, projecting an adjusted EBITDA between $200 million and $250 million.
The forecast significantly exceeds the FactSet consensus estimate of $110 million and approaches the company's peak EBITDA of $253 million in fiscal year 2021.
Peloton's upward revision is attributed to its ongoing restructuring efforts, which are expected to save approximately $200 million in the fiscal year 2025, with around $15 million already realized in the last quarter of fiscal 2024.
Reduced marketing expenses and a strategic shift away from lower-margin hardware sales also contribute to the improved financial outlook. Although a new CEO is anticipated to be announced soon, Peloton's current strategy emphasizes near-term profitability with a focus on enhancing content, user engagement, and retention.
The company is exploring various new initiatives, such as introducing social features on its platform, emphasizing strength training, and offering personalized workout plans. Additionally, Peloton is considering a future price increase.
The firm expects that the negative impact of cycling out pandemic-era subscriber gains will lessen in fiscal year 2025, potentially leading to a demand growth inflection point in fiscal year 2026.
Despite the positive developments, Telsey Advisory Group notes that Peloton's hardware prices are still high, and while promising, new initiatives such as equipment rental and licensed content have not yet made a substantial impact on the business model.
The revised price target of $5 reflects an enterprise value to sales multiple increase from 0.8x to approximately 1.1x, applied to the adjusted fiscal year 2025 sales estimate of $2.46 billion, down from $2.76 billion. This valuation also corresponds to 12 times the revised EBITDA estimate of $228 million for fiscal year 2025, up from the earlier estimate of $65 million.
In other recent news, JPMorgan (NYSE:JPM) downgraded Peloton's stock from Overweight to Neutral, despite the company's successful debt refinancing and cost-cutting measures. This move was influenced by the company's conservative revenue outlook for FY25, taking into account expected declines in hardware sales and broader macroeconomic challenges.
Peloton's financial results for the fiscal year that ended June 30, 2024, indicated a focus on improved margins, despite anticipating a 9% year-over-year decrease in both subscribers and revenue. The company's efforts to streamline operations and achieve $200 million in savings by the end of fiscal year 2025 were highlighted by Needham, which maintained a Hold rating on the company. BMO Capital also maintained a Market Perform rating, recognizing Peloton's strategic shift towards profitability over revenue growth.
InvestingPro Insights
Recent metrics from InvestingPro highlight some of the financial challenges and market perceptions surrounding Peloton Interactive (NASDAQ: PTON). With a market capitalization of $1.71 billion, the company's financial health is under scrutiny, as evidenced by a negative P/E ratio of -2.23, suggesting investor concerns about profitability. Moreover, the adjusted P/E ratio for the last twelve months as of Q3 2024 stands at -2.77, reinforcing the notion that profitability remains elusive.
Peloton's revenue for the same period was approximately $2.7 billion, indicating a slight decline in growth by 4.85%. Despite this, the gross profit margin remains strong at 40.45%, which is a positive sign for the company's ability to manage costs relative to its revenue. However, Peloton's significant debt burden and the challenge of making interest payments are notable concerns, as highlighted by two InvestingPro Tips. The company's stock price has experienced high volatility, with a substantial return over the last week, month, and three months, yet it is essential to note that analysts do not anticipate the company will be profitable this year.
For readers looking for a deeper analysis and additional insights, there are 13 more InvestingPro Tips available for Peloton, which can be accessed through the InvestingPro platform. These tips provide a more comprehensive understanding of Peloton's financial position and market performance, which could be invaluable for investors considering this stock.
This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.