Shannon Stapleton | Reuters
Peloton shares rose to a record high Tuesday after the company announced plans to buy exercise equipment maker Precor for $ 420 million.
At the start of trading on Tuesday, the stock hit an intraday record of $ 160.56, up 11.2% from Monday’s close of $ 144.39.
Telsey Advisory Group analyst Dana Telsey believes the deal could increase Peloton’s annual sales by $ 480 million to $ 500 million, provided Peloton retains Precor’s sales. The deal is expected to close early next year. Upon completion, Precor will operate as a division within Peloton and continue to manufacture its own branded products, the companies said.
The deal should enable Peloton to accelerate production and reduce lead times, “which should increase sales and improve the customer experience,” Telsey said in a statement to customers. She raised her target price on stocks from $ 145 to $ 180.
Demand for Peloton’s exercise equipment has increased during the coronavirus pandemic, putting a strain on the supply chain as consumers look for ways to exercise at home. When Peloton reported quarterly results in November, it warned that it would operate under supply constraints “for the foreseeable future”.
Peloton will acquire Precors more than 625,000 square feet of manufacturing space and employ nearly 100 people in research and development.
“An increase in production capacity should help remove the biggest obstacle to growth,” said Ed Yruma, analyst at KeyBanc Capital Markets, in a customer statement. He raised his target price from $ 160 to $ 185.
Peloton stocks are up more than 400% since the start of the year. The high-end manufacturer of bicycles and treadmills has a market capitalization of $ 42.2 billion.