Peloton: Tread+ Warning Nothing More Than a ‘PR Black Eye,’ Says Analyst

Stock Market

“Kids, get off that treadmill or you will die” is not the sort of instruction a parent expects to make after purchasing a new workout product. However, that, in a nutshell, is what the Consumer Product Safety Commission (CSPC) has said consumers should do as a safety measure when faced with Peloton’s (PTON) exercise machine, Tread+, in the home.

The statement was made after an investigation concluded the product caused one death and 39 injuries. The probe followed the death of a child in an incident involving a Tread+.

Refuting the investigation’s findings, Peloton said the claims are “inaccurate and misleading.” Additionally, the company does not intend to stop selling the Tread+ and stressed how important it is to follow the product’s safety protocols regularly. 

“While this news is a PR black eye for Peloton,” said Truist analyst Youssef Squali, “We don’t believe it’ll have a material impact on the company’s short-term results, or on demand for its treadmills.”

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How come? Well, for several reasons. First off, Squali says it is unclear “whether the Tread+ is more dangerous than an average treadmill.”

In 2019, in the US, according to CPSC data, treadmill related emergency room visits numbered 22,500. In total, throughout 2018 and 2019 combined, there were 17 deaths. As a reminder, Squali notes, Peloton only launched its tread in 2018.

Moreover, while US consumers like stationary bikes, they like treads even more. Every year, on average, roughly 5 million are sold in the US. “This level of demand has only gotten stronger with the pandemic,” Squali further noted.

Finally, it is not as if Peloton did not take the threat of an accident involving its equipment seriously, as its bike and tread come with repetitive warnings, and management have pledged to take “whatever steps necessary to further inform members of potential risks.”

“All that said,” the 5-star analyst summed up, “Again this is a major PR issue for the company right now, and one that’s likely to carry some legal/financial liability.”

However, there’s no change to Squali’s rating, which stays a Buy. The analyst puts a $160 price target on PTON shares, implying an upside of ~50% for the year ahead. (To watchSquali’s track record, click here)

The Truist analyst’s colleagues agree; PTON stock has a Strong Buy consensus rating, based on 19 Buys, 4 Holds and 1 Sell. The average price target is a touch higher than Squali’s, and at $161.38, suggests upside of ~52% within the one-year time frame. (See PTON stock analysis on TipRanks)

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Disclaimer: The opinions expressed in this article are solely those of the featured analyst. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.

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