Peloton shares heading to all-time high as investors bet Precor deal will ease manufacturing delays

Shannon Stapleton | Reuters

Peloton shares are on pace to hit a record high Tuesday, on the heels of the company’s announcement that it plans to buy the exercise equipment manufacturer Precor for $420 million.

The stock was up nearly 11% in premarket trading. It had closed Monday at $144.39, after hitting an all-time high of $144.88 in trading Monday afternoon.

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

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

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

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

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

Peloton shares have surged more than 400% year to date. The high-end cycle and treadmill maker has a market cap of $42.2 billion.

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