Peloton Analysts Bullish After Earnings Beat: 'Recalls Not As Bad As Feared'

Peloton Interactive Inc PTON shares rebounded by 2.6% on Friday after the company reported impressive fiscal third-quarter sales growth and assured investors it’s working quickly to resolve safety issues with its treadmills.

For the fiscal third quarter, Peloton reported a 3-cent EPS loss, beating the 12-cent loss analysts had expected. Peloton also reported $1.26 billion in revenue, ahead of the $1.1 billion consensus analyst estimate. Revenue was up 141% from a year ago.

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Peloton reported $1.02 billion in connected fitness revenue, up 140%. The company also reported $239.4 million in subscription revenue in the quarter, up 144%.

Peloton’s earnings report comes the same week the company issued a recall of all of its treadmill products that the company said will have a $165 million impact on its fiscal fourth-quarter sales. Peloton is now guiding for $915 million in fourth-quarter revenue.

Near-Term Headwinds: Bank of America analyst Justin Post said Peloton’s third-quarter numbers were impressive, but negative treadmill press, difficult comps and gym reopenings will all be near-term headwinds for the stock.

“F3Q was very strong (churn was especially impressive, in our view), the financial impact of tread recall was likely well below worst-case fears, and we think management did a commendable job outlining fixes and showing optimism on the business,” Post wrote.

Raymond James analyst Aaron Kessler said the treadmill recall overshadowed what was otherwise a very impressive quarter.

“F3Q21 revenue was well ahead of expectations, driven by strong demand for Bike, as well as a $125M revenue pull-forward as a result of reduced delivery backlogs,” Kessler wrote.

KeyBanc analyst Edward Yruma said investors can expect more near-term noise, but Peloton remains an excellent long-term opportunity.

“While Peloton’s issues with the Tread are exacerbating already volatile COVID-19 reopening shifts, we think the risk/reward is highly attractive for LT investors,” Yruma wrote.

Treadmill Relaunch Ahead: Telsey Advisory Group analyst Dana Telsey said the financial impact of the treadmill recall is “not as bad as feared,” and the stock has likely bottomed.

“Importantly, the company believes the Tread launch could proceed in the US this summer, potentially as early as July, earlier than we anticipated,” Telsey wrote.

Needham analyst Bernie McTernan said the relaunched treadmill will be a transformative product for Peloton.

“With more clarity on the recall, which we assume will largely be confined to the FY4Q, we like the risk reward at these levels as we are closing in on the launch of the value tread in July, we assume,” McTernan wrote.

Related content: Benzinga's Full Earnings Calendar 

Ratings And Price Targets:

• Bank of America has a Neutral rating and a $100 target.
• Raymond James has a Market Perform rating.
• Telsey has an Outperform rating and a $120 target.
• Needham has a Buy rating and a $125 target.
• KeyBanc has an Overweight rating and a $185 target.

(Photo: Peloton)