Shannon Stapleton | Reuters
Peloton shares rose to a record high on Tuesday after the company announced plans to buy exercise equipment maker Precor for $ 420 million.
At the start of trading on Tuesday, the shares were at an intraday record of $ 160.56, up 11.2% from Monday’s close of $ 144.39.
Telsey Advisory Group analyst Dana Telsey said the deal is expected to increase Peloton’s annual sales by $ 480 million to $ 500 million, assuming Peloton keeps Precor’s revenue. The agreement will be concluded early next year. Once completed, Precor will operate as a business unit within the Platoon and will continue to produce its own branded products, the companies said.
The agreement should allow Peloton to speed up production and shorten delivery times, “which should boost sales and improve the customer experience,” Telsey said in a note to customers. She raised her stock price target to $ 180 from $ 145.
Demand for Peloton exercise equipment increased during the coronavirus pandemic, tightening its supply chain as consumers sought ways to work from home. When Peloton reported quarterly earnings in November, it warned that it would operate under supply constraints “for the foreseeable future.”
Peloton will acquire more than 625,000 square meters of Precor’s manufacturing space and will add nearly 100 employees in research and development.
“Increasing production capacity should help mitigate the biggest impediment to growth,” KeyBanc Capital Markets analyst Ed Yruma said in a customer note. He raised his price target to $ 185 from $ 160.
So far, Peloton shares have increased by over 400%. The state-of-the-art bicycle and treadmill manufacturer has a market cap of $ 42.2 billion.