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Peloton will soar 43% from current levels as its stock catches up with surging demand, Goldman Sachs says

Ben Winck   

Peloton will soar 43% from current levels as its stock catches up with surging demand, Goldman Sachs says
  • Goldman Sachs analysts lifted their price target for Peloton stock to a Street-high $96 from $84 on Thursday, implying a 43% increase from Wednesday's close to August 2021.
  • Wall Street's expectations for the fitness equipment company's growth "remain far too low," the team wrote in a note to clients.
  • Peloton sales surged through the pandemic as Americans looked to work out in quarantine. That trend is set to continue as gyms struggle to bring back clients, Goldman said.
  • The company gained as much as 7.6% in Thursday trading.
  • Watch Peloton trade live here.

Peloton stock is worth far more than its current levels and most of Wall Street just doesn't know it yet, Goldman Sachs said Thursday.

The team of analysts led by Heath Terry lifted its price target for the fitness hardware stock to a Street-high $96 from $84, implying a 43% leap from Wednesday's close. Estimates for Peloton's growth and future profits "remain far too low," according to the bank.

Sales have soared through the pandemic as more Americans look to stay fit in quarantine. Peloton's weeks-long order backlog signals lasting demand, and the company's move to double production in June has yet to impact its stock price accordingly. Shares are all but certain to surge once investors catch on to the company's dominance, the analysts said.

"This isn't simply pull forward, but rather an acceleration and steepening of the adoption curve as network effects are amplified, marketing spend is repurposed, and the fundamental fitness landscape is altered," Goldman said.

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Peloton traded as much as 7.6% higher following the note's release. The stock is up roughly 220% from its March low.

The company is slated to report fiscal fourth-quarter earnings on September 10, and Goldman has high hopes for its performance through the pandemic. The analysts expect Peloton to post 208,000 new subscribers compared to the consensus estimate of 199,000, according to FactSet.

Forward guidance will more dramatically outpace the average estimate, the team added. Goldman sees Peloton boasting a September-quarter profit of $178 million, more than 10 times the $12 million consensus expectation.

The bank's earnings estimate could even surprise to the upside, the team said, "given the lack of marketing spend in the quarter."

The rapid growth is set to continue well into the end of the coronavirus crisis, according to the bank. The already strong demand for Peloton's products will balloon as Americans are slow to return to commercial gyms and "word of mouth" marketing increases exponentially.

Once Peloton enjoys several quarters of revenue outperformance and little-to-no marketing costs, the company should enjoy "meaningful flow-through to bottom-line profitability" similar to other digital subscription firms including Netflix and Etsy, the team said. The fitness firm should be able to notch "meaningful near-term profitability" as soon as the second quarter, they added.

Peloton traded at $70.42 per share as of 3:25 p.m. ET, up 153% year-to-date.

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