Peloton Rises As Analyst Sees Recall Impact As Short-Lived

Shares of Peloton Interactive (PTON) are on the rise on Monday after Loop Capital analyst Daniel Adam initiated coverage of the stock with a Buy rating. The analyst believes the impact of the recent recalls will be short-lived and that management's guidance "likely bakes in an excessive amount of conservatism".

SHORT-LIVED RECALL IMPACT: Loop Capital analyst Daniel Adam initiated coverage of Peloton Interactive with a Buy rating and $140 price target. The shares are down 40% from the January highs, in large part due to the company's voluntary recalls of the Tread and Tread+ and negative press around the safety of those products, Adam noted. The analyst believes, however, that the impact of the recalls will be short-lived and that management's guidance "likely bakes in an excessive amount of conservatism." Peloton "could easily" raise subscription prices and its pricing power potential is underappreciated by investors, the analyst argued. He expects Peloton's subscription revenue growth to continue outpacing growth in its Connected Fitness products and estimates subscription revenues lifting 67% annually over the next two years versus 20% average annual growth in Connect Fitness products.

After hosting its CFO Jill Woodworth at the firm's conference last month, JPMorgan analyst Doug Anmuth kept an Overweight rating on Peloton Interactive. The analyst believes the Peloton Output Park facility will further solidify the company's supply chain, and that Peloton has solved its manufacturing issues. The company's investment in its domestic manufacturing footprint indicates it remains confident on strong demand across a range of products over time, Anmuth contended. Further, the analyst pointed out that management remains confident in strong Tread demand and the delay is only a couple of months.

TREAD, TREAD+ RECALLS: Earlier last month, Peloton was in the spotlight following the announcement of two separate voluntary recalls of the company’s Tread+ and Tread treadmills. Peloton said it was recalling about 125,000 Tread+ treadmills with model number TR01 after a six-year-old child recently died after being pulled under the rear of the treadmill and following 72 reports of incidents involving the treadmills. Additionally, Peloton recalled about 1,050 Tread treadmills in the U.S. and about 5,400 in Canada, as the touchscreen on the treadmill can detach and fall, posing a risk of injury to consumers.

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