Peloton (PTON) just raised its FY26 free cash flow guidance to at least $250M—a major shift from its multi-year restructuring grind. Here's what's moving the needle:

**Q1 Results:** Generated $67M in FCF (vs $10M last year), with adjusted EBITDA hitting $118M. Margin expansion is the real story—gross margin bumped to 52% (+100bps), and hardware margins jumped 660bps YoY to 15.8%.

**The Setup:** Cost cuts + tariff relief + better product mix. Even after stripping out ~$30M in timing benefits, underlying operating leverage is clearly improving.

**The Headwinds:** Bike+ recall hitting 833K units could trigger modest subscriber churn in Q2. Connected Fitness category still contracting. Rental/secondary market users (typically high churn) are overrepresented in the base.

**The Play:** Stock down 11.5% in 3 months, trading at 1.25x forward P/S vs industry avg 2.02x. Wall Street projects 136.7% EPS growth in FY26 vs peers at 3-30% range. FCF momentum could unlock capital allocation optionality once leverage normalizes.

Zacks Rank: #3 (Hold). The margin story checks out, but near-term churn risks keep a lid on upside.