Working out during the pandemic certainly seems to be working out for Peloton.
The indoor fitness company that produces stationary bikes, treadmills, and social-media-famous fitness classes (and instructors) is enjoying quite a run. The company’s stock is up over 80% year to date, while the S&P still lags about 5% for the year. And some on the Street are bullish the fitness company may still have room to ride.
Analysts at Stifel just raised Peloton’s price target from $55 to $62—a Street high—on bullishness that Peloton would continue to benefit from “shifting consumer behavior, gym closures/social contact avoidance, and steady demand from word-of-mouth.” In fact, those tailwinds “have the potential to fuel multiple quarters of holiday-like demand in our view, while also pulling forward the margin expansion path by two to three years in our expectations,” analysts wrote. Peloton’s stock popped over 7% in midday trading Monday. The new price target implies an over 13% rally in the stock.
The company has become a pandemic staple for some fitness enthusiasts amid shelter-in-place orders, despite the steep price tag (a bike goes for about $2,245). The fitness company topped 1 million connected-fitness subscribers recently (the company extended its free trial of its digital subscription from one to three months in March), and although many consumers are likely tightening their belts amid the economic uncertainty, Peloton’s fastest-growing demographic for product sales earns under $75,000 per household.
Meanwhile, analysts are optimistic about the likely lower-than-expected churn rate for Peloton’s connected fitness subscriptions, and note its app has seen a boost in international markets lately too, with “exceptional strength” in the U.K. And Stifel analysts are predicting “seasonal upside,” increasing total revenue estimates to –16% (quarter over quarter) for the September quarter (still up 100% year over year), ahead of the Street forecasts of –25%.
However, Peloton isn’t riding the wave of at-home fitness trends alone. Competition is also heating up in the socially distanced workout space, as those like Hydrow, an at-home rowing startup, and Tempo, an at-home weights training startup, gain traction. As the pandemic has forced many fitness enthusiasts out of their gyms and into their homes, the demand for (pricey) at-home equipment and classes seems to have increased. Hydrow, whose machines retail at $2,199, says sales have risen 400% in April compared with January, while sources recently told Fortune that Tempo (whose system costs $1,995) raised some $60 million in funding (yet to close).
And those like Hydrow are aiming to challenge Peloton’s success directly. “I think there will be four or five winners,” Hydrow CEO Bruce Smith recently told Fortune of the at-home fitness space.
What’s more, as states reopen, gyms are reopening with them. Most gyms are operating at reduced capacity, but it’s likely fitness enthusiasts won’t want to work out alone forever. Still, analysts at Stifel see the downsizing of big gym brands (like Gold’s Gym and 24 Hour Fitness, which also filed for Chapter 11 bankruptcy) as another positive driver for Peloton.
In addition to raising the price target, analysts at Stifel also raised the next 12 months’ subscriber and delivery estimates, anticipating 4% higher revenues.
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