The Ratings Game: Peloton stock can soar nearly 80% to KeyBanc analyst’s new price target

Shares of Peloton Interactive Inc. got a lift Monday, after KeyBanc analyst Edward Yruma said the recent selloff presented a “compelling” opportunity for long-term investors to buy, as recent Bike price cuts should offset a slower Tread ramp.

The stock

rose 1.2% in midday trading Monday. It has bounced 5.9% since closing at a 13-month closing low of $82.35 on Oct. 4, but was still trading at almost half the record closing price of $167.42 on Jan. 13.

The weakness this year resulted from investor concerns over the impact of the lifting of COVID-19-related restrictions, such as gym reopenings; the backlash from the company’s response to a recall of treadmills, after reports of injuries and a death; and increasing competition.

Read: Peloton stock sinks to 8-month low after 125,000 treadmills recalled for ‘risk of injury or death’

Also read: A bunch of fitness companies are jumped into the IPO market this year. It’s not working out.

After a brief bounce over the summer, the stock’s selloff resumed in late August, after the company reported a much wider-than-expected quarterly loss, as cost of revenue more than doubled to outpace revenue growth of 35%.

Don’t miss: Peloton cuts bike price, predicts a pause in its pandemic boom, and its stock falls.

FactSet, MarketWatch

KeyBanc’s Yruma reiterated the overweight rating he’s had on the stock since a month after the company went public in September 2019. He cut his price target by 16%, to $155 from $185, but the lower target still implied 77.8% upside from current levels.

“While we acknowledge [near-term] concerns about reopening and Tread, we think recent weakness presents a compelling [long-term] entry opportunity,” Yruma wrote in a note to clients. “

He said his research shows that Peloton is taking “more aggressive steps” in trying to explain to potential customers why its Tread product and the whole-body workout that goes with it is better than conventional treadmills.

Meanwhile, Yruma said his field work has shown there has been a “strong response” to the reduced prices for Bike products, which suggests the “offensive move” to lower prices should help Peloton maintain its outsized share of the at-home spin bike market.

He also believes Peloton has a “significant opportunity” to benefit from revenue streams from other devices, such as a rowing machine, and other subscriptions, as well as apparel.

The stock has shed 29.1% over the past 12 months, while the SPDR Consumer Discretionary Select Sector exchange-traded fund

has rallied 19.5% and the S&P 500 index

has climbed 26.5%.

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