Peloton Set to Benefit from Structural Shift in Fitness Industry, Says 5-Star Analyst

The fitness industry has changed, and Peloton (PTON) stands to reap the benefits. Truist Securities’ Youssef Squali recently surveyed 1,500 consumers to gain insights on exercise habits and related preferences, with the findings only reaffirming the analyst’s confidence in PTON.

Throughout most of the U.S., gyms have reopened, but consumers aren’t hitting the locker room. Still nervous about going back to fitness centers, only 45% of respondents have been to a gym or an exercise class since the onset of the pandemic. Additionally, 33% are visiting the gym less frequently than before COVID-19.

Going forward, most survey participants noted that their longer-term exercise plans will incorporate a larger at-home component. Nearly 60% of gym-goers plan to cancel at least one gym membership as a result of COVID, including 33% who have already done so, while 55% plan to exercise at home more often even if a vaccine is widely-available.

Calling the number of gym-goers that have already canceled at least one membership “striking,” Squali thinks it could “portend greater pressure for gyms ahead.”

Expounding on this, the analyst stated, “This also suggests that the shift towards at-home fitness is likely to continue into 2021 and beyond. We believe many gym-goers, when faced with the reality of not being able to visit their fitness centers for an indefinite amount of time, have experienced and warmed to the benefits of working out from home (convenience, cost, time savings, etc.). We anticipate that this dynamic will outlive COVID.” To this end, Squali sees this trend as a tailwind for PTON.

Of the 1,169 respondents who worked out at least once a month, 54% made a fitness equipment or services related purchase for home use. It should be noted that out of this group, 40% had no plans to make an at-home fitness-related purchase before the pandemic.

“We believe this is a trend that helped drive better than expected earnings these last few quarters for Peloton. This also supports Peloton’s thesis that its serviceable addressable market (SAM) has expanded beyond its initial 14 million estimate to 20 million, as consumers who may not have considered purchasing at-home equipment previously are now a growing base of customers… With a very strong NPS, expanding product line and geographies, and continued brand marketing pushes, we believe that the TAM/SAM opportunities are likely to continue to expand over time,” Squali explained.

What’s more, Peloton was cited as the top brand that consumers would buy. “This speaks to the strength of the Peloton brand among younger, less affluent consumers, and runs contrary to the thesis held by some that that Peloton remains an exclusive brand and therefore targeting a niche segment (see page 3/4 for figures),” in Squali’s opinion.

As bikes are gaining share in the at-home exercise equipment market and PTON’s lower-priced products are attracting major interest, Squali remains on board this fitness train.

Accordingly, Squali reiterated a Buy rating. He also bumped up the price target from $115 to $144. This target puts the upside potential at 5.55%. (To watch Squali’s track record, click here)

Are other analysts in agreement? Most are. 20 Buy ratings, 2 Holds and 1 Sell have been issued in the last three months. Therefore, PTON is a Strong Buy. However, given the $117.48 average price target, shares could drop 14% in the next year. (See Peloton stock analysis on TipRanks)

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Disclaimer: The opinions expressed in this article are solely those of the featured analyst. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.

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