Peloton (PTON) - Get Report was initiated with a buy rating and $42 price target at Rosenblatt Securities, which sees the subscription exercise company benefiting as the coronavirus forces gyms to close.
The firm sees the New York home workout equipment and streaming company as a direct beneficiary as gyms close as part of the world's effort to combat the virus.
Peloton "is attractively positioned disrupting the fitness industry and an attractive business model benefiting economies of scale and early-mover advantage," analyst Bernie McTernan wrote.
The company "should be a beneficiary from Covid-19 in the short term as gyms are closed," he said.
The analyst sees potential upside over the medium term as "consumer preferences continue to shift towards working out at home."
The price target represents 50% potential upside from the stock's Thursday closing price. Peloton shares at last check rose 1.5% to $27.13.
McTernan says Peloton is at the intersection of two fitness trends: delivering the quality of boutique fitness studios like Equinox, while also providing at-home convenience.
Peloton is still delivering bikes amid the coronavirus outbreak while also bringing in digital subscriptions, though Rosenblatt's checks have shown that delivery times are increasing. But the firm says that's a sign that demand for the product and service is greater.
The firm's bull case assumes Peloton will add 1 million incremental connected fitness subscribers by the end of fiscal 2021. The bear case focuses on Peloton's lower-priced competition hurting sales and reducing subscription average revenue per user.
"The economics of adding a subscription are extremely attractive because there are only modest incremental costs for adding one to the platform and subscribers have exhibited high retention rates supporting robust customer lifetime values," McTernan said.