This analyst raised his price target on Peloton despite weak results: here’s why

Peloton Interactive Inc (NASDAQ: PTON) said its sales topped Wall Street estimates in the fiscal fourth quarter. Shares of the company, however, tanked more than 10% in after-hours trading on Thursday on a wider-than-expected loss.

Financial performance

Peloton reported $313.2 million of loss for Q4 that translates to $1.05 per share versus 27 cents of earnings in the same quarter last year and 44 cents of per-share loss expected. Its sales printed at $937 million – an increase from $607 million last year. FactSet consensus was for $929 million in sales.

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With a 114% annualised growth, connected fitness subscriptions topped estimates, unlike paid digital subscriptions that fell shy. Gross margins at 27% were sharply lower than 35% expected due to the treadmill recall, price cuts, and supply chain and freight costs.

For the full year, Peloton noted an over 100% increase in its sales as the COVID-19 crisis restricted people to their homes, fuelling demand for exercise equipment.

Future guidance

Peloton doesn’t expect the pandemic boom to continue. It forecasts around $800 million of sales for fiscal Q1, significantly lower than the analysts’ estimate of more than $1 billion. The U.S. company expects to remain in loss this year on $5.4 billion of sales, as per the earnings press release.

In comparison, experts are forecasting 47 cents of per-share GAAP profit on $5.25 billion in sales. Gross margins are likely to stand at 33% in Q1 and 34% this year as a whole – both well below estimates. Peloton also said it will cut the price of its exercise bike by $400.

Bernie McTernan’s remarks on CNBC’s “Closing Bell”

Despite weak results and guidance, Needham’s Bernie McTernan reiterated his ‘buy’ rating on the stock and raised his price target to $135 that translates to an about 30% upside from here. On CNBC’s “Closing Bell”, he said:

“The revenue and subscribers guide for the year are better than expected. We also think the price cut is a positive because they are lowering costs to acquire more customers. The value of the company is their high-quality subscription that has a really low churn. So, lower prices mean more customers on the platform in the long-term.”