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Peloton Gets a Downgrade, Under Armour Upgraded by BMO Capital Markets

Peloton is downgraded by BMO Capital Markets, which maintains its $26 target price on the stock but notes 'that until a path to profitability is proven, it is not hard to argue for further downside.'

Peloton Interactive's  (PTON) - Get Report rating was downgraded to underperform from market perform by an analyst at BMO Capital Markets who also upgraded Under Armour  (UAA) - Get Report to market perform from underperform.

Shares of Peloton were down 2.4% to $32.69, while Under Armour was up slightly to $9.91.

Analyst Simeon Siegel said in a note to clients that he expects strong stay-at-home related second-half sales for Peloton, but "with the shares +70% from recent lows, so does everyone else and we worry that accelerating member growth will prove a pull-forward of demand, rather than an expansion of it."

Siegel said he remained concerned that Peloton's lower-priced digital offering is essentially “too good” compared with its more-expensive-for-the-same-content Connected Fitness subscription.

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"We are maintaining our $26 target price, but note that until a path to profitability is proven, it is not hard to argue for further downside," he said.

The New York-based stationary bike, home exercise equipment and online workout company had seen its shares climb amid the extended coronavirus crisis lockdown.

Meanwhile, Siegel said his earlier underperform rating of Under Armour "had been predicated on our concern that the UA brand had already past its peak North America sales and a recognition that it would likely not see those levels again."

"To be clear," said Siegel, who kept his $9 stock price target, "we still (see) the potential for risk ahead. However, we also see the opportunity for management to use a forced revenue reset to focus on profits and, as such, at current levels we choose to move to the sidelines, and will monitor management's future decisions to re-engage."

It is growing increasingly clear that Under Armour is no longer a growth story, Siegel added, and although "Shrink to Grow" stories "generally drive better margins, we believe that is predicated on deep revenue resets." 

"As such, how UA decides to approach its business post Covid-19 will have meaningful repercussions for its future," Siegel said.