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Investing.com -- In a note to clients Tuesday, Argus upgraded Peloton Interactive (NASDAQ:PTON) to a Buy rating with a price target of $15, citing strong demand for in-home health and fitness services.
The firm believes the company is well-positioned to capitalize on this trend while implementing cost-cutting measures to align expenses with competitors.
"Given his background in the health & fitness industry, we think that Peloton’s new CEO, Peter Stern (AS:PBHP), can reduce debt, revive subscriber growth, and increase customer retention," Argus analysts noted.
The firm expects Peloton to benefit from rising interest in fitness products and operational efficiencies as sales increase.
"The company’s fitness platform is well positioned to benefit from demand for in-home health and fitness subscription service," Argus stated.
Peloton’s fiscal second-quarter revenue fell 9% year-over-year to $674 million, but still exceeded the consensus estimate of $653 million, notes the firm.
Its Connected Fitness segment saw a 21% decline to $253 million, while subscription revenue dipped 1% to $421 million, both surpassing expectations. Gross margin rose to 47.2%, up from 40.3% a year earlier.
Cost-cutting efforts helped drive a turnaround in earnings, with adjusted EBITDA reaching $58.4 million, compared to a loss of $81.7 million in the prior year.
"The improvement partially reflected timing savings in fiscal year 2025," Argus wrote. Peloton also raised its free cash flow target to at least $200 million from $125 million, and increased its adjusted EBITDA guidance to $300-$350 million.
Argus expects freight costs and supply chain disruptions to ease, further supporting profitability. As a result, the firm narrowed its FY25 loss estimate to $0.40 per share from $0.45 and lowered its FY26 loss estimate to $0.25 from $0.30. Given these improvements, Argus sees Peloton as well-positioned for long-term growth in the evolving fitness market.