By Goldman Sachs has upgraded its outlook on Peloton (PTON) following stronger-than-expected quarterly earnings that eased investor concerns and signaled a potential turnaround for the connected fitness company.
Upgrade signals renewed confidence
Analyst Eric Sheridan raised Peloton’s rating to buy from neutral, citing a shift in the company’s trajectory under new leadership and a series of strategic initiatives aimed at platform growth and monetization.
Sheridan also increased its 12-month price target to $11.50 per share, up from a previous target of $7.
This new target suggests more than 61% potential upside from current levels.
“In total, we see PTON as a story with new [management], new initiatives aimed at platform growth and monetization for the next few years and a scope for higher incremental returns on capital in the form of free cash flow conversion,” Sheridan wrote in a note to clients.
He added that additional details from Peloton on its long-term strategies could bolster investor confidence over the next 12 to 18 months.
Earnings beat and cost-cutting efforts
The upgrade follows Peloton’s fiscal fourth-quarter results, released Thursday, which surpassed Wall Street’s top and bottom-line expectations.
For the quarter ending on June 30, the company reported a net income of $21.6 million, which translates to 5 cents per share. This marks a significant improvement from the same period last year, when the company experienced a loss of $30.5 million, or 8 cents per share.
The reported earnings of 5 cents per share surpassed analyst expectations, which had projected a loss of 6 cents per share. Additionally, the company’s revenue for the quarter was $607 million, exceeding the anticipated $580 million.
The company’s results mark a notable improvement after a challenging period marked by slowing sales and subscriber losses since the pandemic-driven boom.
Peloton also announced a fresh cost-cutting plan aimed at saving $100 million in expenses. Half of the savings will come from laying off 6% of the company’s staff.
These measures build on earlier restructuring efforts and are designed to streamline operations and improve free cash flow.
Following the earnings release, Peloton shares rose nearly 5% in premarket trading on Friday.
Despite this bump, the stock remains down 18.3% year-to-date as it works to recover from a difficult 12 months.
Long-term growth potential
Sheridan’s bullish outlook extends beyond the immediate earnings beat.
He anticipates that Peloton could return to total revenue growth by the middle of fiscal year 2026, with potential for that growth to accelerate in the latter half of the year.
This, he suggests, could put the company into a “solid revision cycle,” driving upward adjustments to earnings and revenue estimates.
The optimism is also tied to Peloton’s efforts to optimize its cost base and improve its capital structure, alongside refining its go-to-market strategies and expanding the use cases for its fitness products.
By aligning its operational structure with a clearer growth vision, Peloton is aiming to reposition itself in a competitive fitness landscape.
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