Morgan Stanley pushes back on Peloton bulls, stands by underweight

Investing.com -- In a note Thursday, Morgan Stanley doubled down on its bearish call on Peloton, addressing the main pushback from investors who see paths to upside after its recent downgrade.

Analyst Nathan Feather, who cut Peloton to Underweight from Equal Weight this month, said the market generally shares his view on the structural headwinds facing the connected fitness company, but that some bulls still see reasons for optimism.

Their arguments are said to include that new product launches will drive a rebound in gross additions, that the commercial segment will bolster growth, that heavy buybacks can drive outsized returns, and that the stock is attractively valued.

On the first, Feather acknowledged that new modalities, potentially including a more affordable treadmill and a connected strength machine, would be incrementally beneficial, but said "the market is already pricing-in optimistic growth assumptions."

He noted connected strength machines have a poor track record, with previous devices either too large and expensive or insufficient for serious training.

While Peloton has lost share of the overall bike, tread and rower market, to an estimated 9%, down from a roughly 38% peak during the pandemic, Feather said it retains a dominant share of about 45% of the connected fitness market, which he views as the more relevant measure.

Most importantly, he stated, consensus already expects gross additions to inflect, rising 36% over three years despite five straight years of double-digit percentage declines.

"That sets a high bar which we think is unlikely to be met," Feather wrote.

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