UBS downgrades Peloton, sees limited upside after stock more than doubles this year

Published Thu, Jul 16 20207:54 AM EDT

(This story is for CNBC Pro subscribers only.) UBS sees limited upside for high-flying "stay-at-home" stock Peloton after its 122% gain in 2020. The Wall Street firm downgraded shares of Peloton to neutral from buy, sending shares of the stationary bike maker down 2.5% in premarket trading on Thursday. "We believe the stock is fairly valued at these levels as investors are already pricing in a high degree of expectations for forward subscriber/revenue growth and path toward profitability in the coming years," UBS equity analyst Eric Sheridan told clients. Shares of Peloton have soared more than 120% this year as the coronavirus crisis promoted consumers to invest in at-home fitness bikes as gyms shuttered closed during the government mandated shutdown. Peloton was dubbed a "stay-at-home" stock, alongside Netflix and Telodoc, benefiting from the quarantine. However, as investors poured into the stock, its valuation got ahead of itself, said Sheridan. "We see limited upside from current levels," he added. Alongside the downgrade, UBS hiked Peloton's 12-month price target to $58 per share, as the stock blew past the firm's old $48 per share target. The new target implies about 8% downside from Peloton's current price of $63.13. The firm said Wall Street, including UBS, already has high expectations for Peloton, even after its massive run-up this year. Wall Street is pricing in more than 60% compound annual revenue growth from 2019 to 2020 based on a 4.5x enterprise value-to-sales multiple. UBS raised it forward revenue estimates from Peloton for both connected fitness product revenue and subscription revenues. Sheridan said UBS' "industry checks and data from the UBS Evidence Lab point to better than expected trends as COVID-19 stay-at-home measures continue to drive higher consumer adoption of at-home fitness." "We apply a 4.5x multiple to represent the average 4-year consumer hardware & subscription peer group average of ~4.8x as well as to maintain our previous multiple-to-growth of 0.10x," said Sheridan. — with reporting from CNBC's Michael Bloom.

Peloton machine

Source: Peloton

(This story is for CNBC Pro subscribers only.)

UBS sees limited upside for high-flying "stay-at-home" stock Peloton after its 122% gain in 2020.

The Wall Street firm downgraded shares of Peloton to neutral from buy, sending shares of the stationary bike maker down 2.5% in premarket trading on Thursday.