What Happened?

Shares of exercise equipment company Peloton (NASDAQ:PTON) jumped 9.4% in the morning session after it received a double rating upgrade from Bank of America analyst Curtis Nagle. The analyst raised Peloton's rating from Underperform (Sell) to Buy and increased the price target from $3.7 to $9, as the announcement of a new CEO raised the hopes of a turnaround. 

Following its Q3 2024 (Fiscal Q1 2025) earnings, Peloton named Peter Stern, who served as president of Ford Integrated Services, as CEO. 

Nagle thinks Peter Stern's relevant experience in subscription, hardware & health tech can help drive subscription improvements. The analyst also sees the potential for cost optimization, which could result in the company reporting north of $300 million in annual EBITDA in the near term. After the initial pop the shares cooled down to $7.59, up 4.6% from previous close.

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What The Market Is Telling Us

Peloton’s shares are extremely volatile and have had 63 moves greater than 5% over the last year. In that context, today’s move indicates the market considers this news meaningful but not something that would fundamentally change its perception of the business. 

The biggest move we wrote about over the last year was 6 months ago when the stock gained 20.9% on the news that private equity firms were considering a buyout of the company. According to sources, there are discussions about cutting Peloton's operating expenses to make a potential acquisition more attractive. On May 2, 2024, Peloton announced cost optimization initiatives to reduce annual run-rate expenses by more than $200m by the end of FY'25. The plan includes reducing its global headcount by approximately 15% (400 Peloton team members). 

Following the announcement of the cost optimization initiatives, Barry McCarthy stepped down from his roles as CEO, President and Board Director, providing more of an opening for potential buyers as the board continues to search for his replacement.

Peloton is up 30.3% since the beginning of the year, but at $7.59 per share, it is still trading 10.8% below its 52-week high of $8.50 from October 2024. Investors who bought $1,000 worth of Peloton’s shares 5 years ago would now be looking at an investment worth $308.21.

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