Peloton action on track to close record deal with Precor

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Shannon Stapleton | Reuters

Peloton shares are on track to hit an all-time high on Tuesday, following the company’s announcement that it plans to buy exercise equipment maker Precor for $ 420 million.
The title was up nearly 11% in pre-market trading. It closed at $ 144.39 on Monday, after hitting an all-time high of $ 144.88 in trading Monday afternoon.

Telsey Advisory Group analyst Dana Telsey said she expects the deal to increase Peloton’s annual sales from $ 480 million to $ 500 million, assuming Peloton retains revenue from Precor. The deal is expected to close in early 2021. Once finalized, Precor will operate as a business unit within Peloton and continue to manufacture its own branded products, the companies said.

The deal is expected to allow Peloton to speed up production and shorten lead times, “which should boost sales and improve the customer experience,” Telsey said in a note to customers. She raised her price target on the stock to $ 180 from $ 145.

Demand for Peloton’s exercise equipment has increased during the coronavirus pandemic, straining its supply chain, as consumers look for ways to work out at home. When Peloton announced its quarterly results in November, it warned it would operate under supply constraints “for the foreseeable future”.

Peloton will acquire more than 625,000 square feet of manufacturing space from Precor and add nearly 100 research and development employees.

“Increasing manufacturing capacity is expected to help alleviate the biggest obstacle to growth,” KeyBanc Capital Markets analyst Ed Yruma said in a client note. He raised his price target from $ 160 to $ 185.

Peloton shares have jumped more than 400% since the start of the year. The maker of premium bikes and treadmills has a market cap of $ 42.2 billion.

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