UBS Analysts Upgrade Peloton to Neutral

UBS analysts upgraded Peloton (NASDAQ:PTON) to Neutral from Sell on Friday, citing potential near-term EBITDA improvements driven by cost optimization but maintaining caution on its growth outlook. The price target has been raised to $10 from $2.50.

Upgrade Reasons

The analysts highlighted several reasons for the upgrade, including further cost-cutting measures beyond the announced $200 million reduction, which have primarily targeted operating expenses.

These savings, alongside moderated buy-side expectations for little to no growth over the next two years, are expected to provide a more favorable setup for the company under its new CEO.

The bank noted that the new CEO transition offers a chance to "further reset the bar against buy-side expectations that are more reasonable now."

Caution on Valuation

Despite these positives, UBS remains cautious. They described Peloton's valuation as "demanding," given the growth outlook remains uncertain.

They stated the connected fitness market continues to struggle, with Peloton experiencing a 2% decline in Q1 subscriber numbers and a projected 5% drop in Q2.

Ongoing Challenges

UBS also observed declining web traffic and app engagement, indicating ongoing challenges in maintaining subscriber momentum.

On the cost side, Peloton has reportedly exceeded its initial payroll and media savings targets, with room for further reductions in general and administrative expenses.

UBS revised its FY2025 EBITDA estimate upward to $298 million from $216 million, driven by these efficiencies.

Conclusion

While UBS acknowledges potential upside from subscription price increases and further cost savings, the lack of clear growth drivers tempers enthusiasm. The analysts concluded that the growth outlook remains elusive, and more challenging subscriber net additions may limit stock rerating.