Bank of America analyst Justin Post downgraded Peloton to neutral from buy and lowered his one-year price target to $100 from $150 amid changes to what he said was his "upside thesis" on the company’s financial prospects.
In a note to clients, Post said his biggest concern on the news is not the potential loss of Tread+ subscribers but the potential impact on the launch of the new lower-priced Tread, which he had previously anticipated would be a significant growth driver.
Post’s downgrade comes in the wake of the death of a six-year-old child, who died after being pulled under the rear of the treadmill.
The U.S. Consumer Product Safety Commission issued a statement in mid-April saying consumers who bought either of Peloton’s treadmills should immediately stop using them and contact Peloton for a full refund.
Peloton also has received 72 reports of adult users, children, pets or objects being pulled under the rear of the treadmill. These include 29 reports of injuries to children, such as second-and third-degree abrasions, broken bones, and lacerations.
Peloton initially held off issuing a recall though reversed course on Wednesday, with Peloton CEO John Foley saying the company "... made a mistake in our initial response to the Consumer Product Safety Commission’s request."
KeyBanc analyst Edward Yruma said in an alert on Wednesday that the recall "is a clear negative." He noted that the "high running surface of the Tread+ may require a more substantive fix."
Stifel analyst Scott Devitt, who has a buy rating on Peloton, said Wednesday that he couldn't yet quantify the near-term impact on Peloton’s business "but it’s likely that this recall will have an infinitesimal long-term impact on the business."
In February, Peloton posted second-quarter results that topped analyst estimates, but said it couldn't keep up with demand and warned that profit would be squeezed in the near term.
Peloton will report its fiscal third-quarter results after the closing bell on Thursday. Analysts polled by Factset expect Peloton to report a loss of 12 cents a share on sales of $1.1 billion.
At last check, shares of Peloton were up 0.36% at $82.92.