Peloton Interactive Inc.
stock soared nearly 13% in Tuesday trading, heading toward a record close, after the fitness company announced a $420 million deal to acquire Precor, a global commercial fitness business.
The deal will establish 625,000 square feet of U.S. manufacturing capability for Peloton, which has struggled to keep up with demand throughout the coronavirus pandemic.
It also adds nearly 100 research-and-development
professionals to Peloton’s team.
Analysts zero in on the business development doors that the acquisition will open.
“We applaud the move as a good use of balance sheet capacity
(vs. chasing other Connected Fitness verticals) that should bolster the supply
chain (adding U.S. manufacturing/R&D), expand the TAM [total addressable
market], and perhaps accelerate international market expansion,” wrote Baird
analysts in a note.
Peloton highlighted the commercial business opportunities in
its announcement. Baird estimates that the market for commercial fitness equipment
sales is more than $3.4 billion globally.
Precor is based in Seattle, but is a division of Amer Sports, a Finnish sporting goods business. Precor has offices across the globe, including Europe and Asia.
“Our continued positive stance reflects Peloton’s open-ended
long-term growth potential combined with multiple near-term drivers,” analysts
led by Jonathan Komp said.
“We believe the company has a large and rapidly expanding addressable market and enviable competitive positioning that can help to capture a more than $6 billion revenue opportunity by F2023.”
Baird rates Peloton stock outperform with a $165 price
target, up from $150.
“The addition of Precor should help augment early efforts in
hotels, multifamily residences, and college/corporate (we note that the release
omitted mention of health clubs),” wrote KeyBanc Capital Markets analysts led
by Edward Yruma.
“Commercial applications require devices designed around
materially higher usage, and Precor’s expertise should be highly additive.”
With regards to the enhanced manufacturing capability, KeyBanc also mentions a North Carolina facility spanning 230,000 square feet, which is “state-of-the-art and has particular focus on strength (a key area of interest for Peloton.”
Peloton is best known for its interactive platform and its
bikes and treadmills.
KeyBanc rates Peloton shares overweight with a $185 price target, up from $160.
The deal is expected to close in early 2021 with U.S.-based
manufacturing expected to ramp up before the end of the year.
“It remains to be seen whether the supply/demand imbalance
persists at this point, but we would assume that Precor’s capacity is far from
being fully utilized given a lack of equipment orders from commercial
customers,” wrote Wedbush analysts led by James Hardiman.
Wedbush anticipates improvement in order delivery lead times,
which has been “unacceptable, especially during the holiday season.”
Wedbush rates Peloton stock outperform with a $160 price
target, up from $130.
Peloton’s price target was also raised at Stifel, up to $160
from $144, with a buy stock rating.
Peloton stock has skyrocketed a whopping 469% in 2020. The benchmark S&P 500 index
is up 14.3% for the period.