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Investing.com -- Truist Securities upgraded Peloton Interactive (NASDAQ:PTON) to "Buy" from "Hold" given its improving fundamentals, cleaner balance sheet, and a clearer path to sustained profitability under new leadership.
Three years after downgrading the stock, Truist said Peloton’s efforts to reduce operating expenses and stabilize cash flow are beginning to bear fruit.
Brokerage has a price target on the stock of $11.
Truist noted Peloton’s focus on returning to revenue growth in fiscal 2026, projecting a 1.9% year-over-year increase after an expected 9% decline in fiscal 2025.
"Increased visibility into an inflection in growth for the company should also lead to an inflection in the stock price, given how de-risked it is at current levels," Truist wrote.
The analysts highlighted recent meetings with management, saying they walked away encouraged, though they acknowledged that the turnaround may take some time to work out.
"The BS cleaned up and Opex materially reduced to ensure sustained FCF profitability," analysts wrote, adding that the stock’s valuation at 1.4x sales and 10.3x adjusted EBITDA appears "mostly de-risked."
New CEO Peter Stern (AS:PBHP), who took over in January, is prioritizing fiscal 2025 profitability targets before shifting focus to growth initiatives. Management is expected to offer more detailed plans during the August earnings call.
Through successive restructurings, including multiple rounds of layoffs, Peloton has significantly lowered costs and is tracking ahead of its $200 million savings target.
Meanwhile, refinancing moves have reduced debt and improved liquidity, with Truist pointing to a drop in Peloton’s net debt-to-adjusted EBITDA ratio to 2.7x in the second quarter from 7x in the first.
Truist identified several potential drivers of top-line growth, including subscription pricing increases, activation fees for used equipment, expansion of treadmill sales, new offerings like Strength+, and strategic partnerships with companies such as Lululemon (NASDAQ:LULU), Google’s Fitbit (NYSE:FIT), and Amazon (NASDAQ:AMZN).
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