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Investing.com -- Canaccord analysts have upgraded Peloton Interactive (NASDAQ:PTON) to Buy from Hold on Friday, citing the company’s progress in returning to profitability and its strong position in the connected fitness industry.
The firm assigned Peloton a $10 per share price target.
Analysts believe Peloton, which has built a “6M loyal member base”, is well-positioned for future growth.
After a period of turmoil, Peloton is “regaining its footing” and is poised to benefit as a “leader in connected fitness,” says the firm.
The company is said ot be “right-sizing its cost structure”, improving its unit economics, and “getting the balance sheet in shape”.
For FY25, Canaccord estimates Peloton will achieve $300M-$350M in adjusted EBITDA, a significant improvement from just $3.5M in FY24.
Additionally, they expect “revenue to inflect in FY26” with new initiatives, followed by subscriber growth in FY27 from the launch of adjacent products.
Canaccord also sees Peloton’s “category-defining global brand” as a major advantage, positioning the company to expand into other health and wellness sectors, such as strength training hardware and nutrition.
These adjacent categories are expected to support recurring subscription growth and drive long-term expansion.
Furthermore, the company’s core business economics have improved with Peloton cutting $600M in costs and reducing its operating expenses, according to the firm.
With “connected fitness gross margin returning to double digits”, Canaccord forecasts strong profitability and “$200M+ in free cash flow (FCF)” in FY25.
Furthermore, Peloton has successfully reduced its leverage, making it “likely able to refinance its term loan” and return to “sales and subscription growth.”
Peloton’s compelling valuation, trading at under 1.5x FY26 sales, makes it an “attractive buying opportunity,” with potential for “multiple expansion” as profitability continues to improve, says the firm.