Peloton Interactive, the at-home fitness company, has experienced a difficult year. However, according to one Evercore ISI analyst, the challenges the company has faced are already factored into the stock’s price.

Q4 Earnings Report

Peloton (ticker: PTON) is set to release its fiscal fourth-quarter earnings before the market opens on Wednesday.

Recent Struggles

The decline in Peloton’s stock can be attributed to several factors. Firstly, the company recalled 2.2 million exercise bikes in May. Secondly, Wall Street has expressed concerns about Peloton’s ability to achieve long-term profitability. Lastly, the company reported an earnings miss.

Analyst’s Opinion

Shweta Khajuria, an analyst at Evercore ISI, no longer classifies Peloton stock as a tactical underperform. In a research report published on Sunday, she stated that since July 20, Peloton stock has fallen by nearly 25%, compared to a 5.5% drop in the Nasdaq Composite. Despite this recent decline, the shares have only slipped around 13% year-to-date.

Peloton Faces Challenges with Bike Recall and Tough Macro Environment

Peloton, the popular fitness company, is expected to face challenges in its fiscal fourth quarter due to the elevated costs associated with a bike recall. Analysts believe that the Street’s gross-margin estimate of 42% may be at risk. Additionally, the company is predicted to experience modest downside risks to net adds in fiscal 2024 due to a difficult macro environment.

The stock price of Peloton has already dropped by 0.9% and currently stands at $6.95.

Peloton experienced a surge in popularity during the Covid-19 pandemic when people were confined to their homes. Back in July 2020, 23 out of the 26 analysts surveyed by FactSet had Buy ratings for the company. However, the sentiment has since shifted. As of now, there are 10 analysts with Buy ratings, 13 with Hold ratings, and three with Sell ratings.

Despite this shift, BofA Securities analyst Justin Post remains optimistic about Peloton’s stock. He rates it as a Buy with a target price of $13. Post emphasized that Peloton has outperformed its competitors in terms of monthly web traffic over the past year. He also believes that Peloton has the potential to achieve free cash flow breakeven in fiscal 2024, which could result in a higher valuation for the company.

In conclusion, while Peloton faces challenges related to a bike recall and a tough macro environment, there are still analysts who are bullish about its prospects. With potential improvements in free cash flow and ongoing competitive advantage, Peloton has the opportunity to rebound and warrant a higher valuation.

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