Peloton Interactive (PTON) could expand its customer base and product offerings with its purchase of fitness equipment maker Precor, analysts said. Peloton stock jumped.
Under a $420 million deal announced late Monday, Peloton will acquire Precor’s factories in North Carolina and Washington. That includes over 625,000 square feet of manufacturing space. Peloton will also acquire nearly 100 research and development personnel for its staff.
The deal, the company’s biggest so far, is expected to close early next year. Precor will operate as a separate brand under Peloton.
Bank of America analysts say the acquisition will provide a big boost in manufacturing capacity to Peloton, which has suffered supply-chain issues after the boom in at-home fitness.
But Precor, known for its lower-cost, commercial-quality fitness equipment, could also do much more than that.
“The acquisition will also likely accelerate Peloton’s entry into the commercial fitness market, which was estimated by Research and Markets at $3.5bn in 2019 (pre-pandemic),” they said in the note. “Precor’s relationships should help open up the commercial sales channel for Peloton equipment in hospitality, multifamily residences, corporations, and college/university campuses. Also, the acquisition will add 100 R&D personnel to Peloton, with expertise in new categories such as elliptical and strength equipment.”
Shares jumped 14% to 164.85 on the stock market today. Peloton stock is now well extended after clearing a 139.85 buy point Monday with the chase zone extending to 146.84. Peloton is one of the best-performing stocks of 2020, and is up almost 700% from its coronavirus crash low.
In November, Peloton reported a 232% jump in fiscal first-quarter sales. The company warned it will be operating under supply constraints “for the foreseeable future.”
“Though we have made progress in narrowing our order-to-delivery windows, continued high global demand for our products resulted in a substantial backlog of deliveries at the end of the quarter,” Peloton said in a statement.
Peloton stock is at the top of IBD’s Leisure-Services Group and is currently on the IBD Big Cap 20.
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