On Monday, Citi downgraded for Peloton (NASDAQ:PTON), shifting the rating to Neutral from Buy. The firm also reduced the price target for the connected fitness equipment company's shares to $4, a significant decrease from the previous $8 per share.
The downgrade follows recent management changes and the introduction of a $200 million restructuring plan at Peloton, which has led to concerns about the company's future revenue prospects. Although Citi acknowledges Peloton's leadership in the Connected Fitness sector and its strong product-market fit, evidenced by low churn rates and high engagement among its 3 million subscribers, the firm cites reduced visibility into the company's top-line performance as a reason for the adjustment.
Citi remains optimistic about Peloton's ability to achieve sustainable positive EBITDA and free cash flow following its reorganization, even without growth. However, they are taking a cautious stance until more details emerge regarding the strategic direction under the new management team.
"While we are encouraged with FY3Q24 results and believe that EBITDA and FCF can now be sustainably positive post its reorganization on no growth, we believe top-line visibility is now more limited, and we await details around Peloton’s strategic direction once new management is announced," wrote the bank.
The decision to downgrade comes at a time when Peloton is preparing for debt restructuring over the coming quarters. Citi recognizes the necessity of Peloton's recent actions and maintains that the company continues to be a leader in its industry with strong results.