Goldman hikes Peloton's target to Street high, says growth is undervalued in the stay-at-home name

Published Thu, Aug 27 20208:53 AM EDT

(This story is for CNBC Pro subscribers only.) Wall Street is underestimating high flying fitness stock Peloton 's growth potential even after rallying nearly 140% this year, according to Goldman Sachs. The Wall Street firm — which has a buy rating on the stationary bike company — hiked its 12-month price target to $96 from $84 per share, sending shares of Peloton up more than 3% in premarket trading on Thursday. Goldman's new target is the highest on Wall Street, implying more than 42% upside for the "stay at home" stock. "Expectations for Peloton's growth and proﬁtability, both in the near and long term, remain far too low, despite the obvious signals of the company's doubling of production, the weeks long order backlog that has persisted through the pandemic, and the absence of any material marketing spend," Goldman Sachs analyst Heath Terry told clients. Shares of Peloton have soared nearly 140% 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. As demand flooded into the newly public company, Peloton management said its production capacity doubled from the start of the lockdowns in March to by June. "As we've noted before, this isn't simply pull forward, but rather an acceleration and steepening of the adoption curve as network effects are ampliﬁed, marketing spend is repurposed, and the fundamental ﬁtness landscape is altered," said Terry. Peloton reports fiscal fourth quarter results on Sep. 10 and Goldman is expecting the company to report 1.094 million subscribers with 208,000 net adds. The consensus on Wall Street is 199,000 net adds and the company's guidance is between 154,00 and 164,000 net ads. Goldman also raised its estimates for the following quarter. "We also believe that there could be considerable upside to our estimates, particularly for the June quarter, depending on the timing of their ability to fulﬁll customer demand," Terry added. Goldman estimates Peloton will report a loss of 44 cents per share on revenue of $1.849 billion in the second quarter. "We would not be surprised to see considerable upside to our EBITDA expectations given the lack of marketing spend in the quarter, though we expect higher fulﬁllment costs likely offset some of those savings," said Terry. Goldman also said Peloton's fitness app — which can be purchased for $12.99 per month — subscriber growth can accelerate by 300 percentage points, as a broad segment of ﬁtness consumers turn to digital applications in the current pandemic. "Peloton's app downloads and in app revenue have accelerated meaningfully since reaching post-COVID lows in mid-June, we expect driven by stagnation in gym foot trafﬁc and digital users rolling off of 90 day free trials started in March/April," said Terry. — with reporting from CNBC's Michael Bloom.

A monitor displays Peloton Interactive Inc. signage during the company's initial public offering (IPO) across from the Nasdaq MarketSite in New York, U.S., on Thursday, Sept. 26, 2019.

Michael Nagle | Bloomberg | Getty Images

(This story is for CNBC Pro subscribers only.)

Wall Street is underestimating high flying fitness stock Peloton's growth potential even after rallying nearly 140% this year, according to Goldman Sachs.

The Wall Street firm — which has a buy rating on the stationary bike company — hiked its 12-month price target to $96 from $84 per share, sending shares of Peloton up more than 3% in premarket trading on Thursday. Goldman's new target is the highest on Wall Street, implying more than 42% upside for the "stay at home" stock.