Since the close of trading last Friday, shares of Peloton (PTON -7.42%) have surged about 10%, as of 1:24 p.m. ET Thursday. Shares are largely moving higher due to a recent Wall Street analyst report that upgraded the stock.
Signs of improvement
Peloton, a maker of exercise equipment and content, has seen its stock get absolutely crushed since the main years of the pandemic, as people returned to the gym following the reopening of the economy, among other issues. But now shares are attractively priced, according to UBS analyst Arpine Kocharian, who upgraded the stock to a buy rating and raised the price target from $7 to $11.50.
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"We see subscription price increases anchoring near-term top line growth, we might also see underlying net subscriber decline stabilizing, outside of price increase driven churn," Kocharian wrote in her research note. "While that inflection in connected fitness subs is not entirely clear to us yet, we are seeing better data trends for Peloton in terms of traffic and active users."
Kocharian is modeling $90 million to $100 million in annualized revenue from increases in subscription pricing. The UBS team is also modeling for EBITDA (earnings before interest, taxes, depreciation, and amortization) to come in between $400 million and $450 million in fiscal year 2026, significantly higher than consensus estimates.
Attractive valuation
At a roughly $2.5 billion market cap, the stock trades at less than 7 times' Kocharian's EBITDA forecast. However, investors should keep in mind that Kocharian is much higher than other analysts on her projection. While Peloton will likely never be the darling it was during the pandemic, the fundamentals do seem to be improving.
Peloton is certainly not one of my favorite stocks in the market, but the risk-reward proposition has improved, which is why I think interested investors can start to nibble on the stock.
