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Precor workout equipment.
Victor J. Blue/Bloomberg
Peloton Interactive
shares are soaring on a deal to beef up the firm’s U.S. manufacturing. Wall Street analysts are raising their price targets.
Peloton (ticker: PTON) said Monday that it has a deal with Amer Sports to acquire workout equipment provider Precor for $420 million. It’s expected to close in early 2021. Precor would help Peloton cut through a backlog of orders and speed up delivery times.
Peloton stock was up 12%, at $162.35, in recent trading, while the
S&P 500 index
was flat. Demand and delivery wait times for Peloton’s equipment have soared with gyms closed. Analysts noted Peloton’s start-up costs—$1,895 for the base bike that requires a $39-a-month subscription to use its main features—help make its customers sticky.
Goldman Sachs analyst Heath Terry raised his price target on the stock to $162 from $144 in a note Monday night. Though he notes Peloton indicated U.S. production of its fitness equipment likely won’t begin until later in 2021, he thinks it will help Peloton expand manufacturing capacity down the line.
“Along with the opening of the company’s Shin Ji [Taiwan] facility, we would expect the acquisition, once completed, to solidify the company’s lead in connected fitness and support diversity in the product portfolio and end markets,” he wrote.
Wedbush analyst James Hardiman notes that while Precor sells at-home equipment, most of its sales come from commercial consumers like gyms, hotels, universities, and multifamily residences.
Hardiman raised his price target to $160 from $130, pointing to Precor’s longstanding relationships with such commercial customers, as well as its roughly 625,000 square feet of manufacturing capabilities in North Carolina and Washington state.
“It is no secret that a perpetual surge in demand for Peloton’s products has left the company scrambling to meet demand, particularly given COVID-driven disruptions that have substantially slowed freight from Asia,” Hardiman wrote. “The resulting order-to-delivery lead times have been unacceptable, especially during the holiday season.
KeyBanc Capital Markets analyst Edward Yruma raised his price target to $185 from $160, calling Precor “highly synergistic and supportive of long-term growth.”
Aside from capacity, he notes Precor will bring with it 100 research and development employees and is known for its strength offerings—an area of fitness where Peloton could grow. Meanwhile, he thinks Precor’s support network in 100 countries could accelerate Peloton’s expansion abroad.
“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),” he wrote. “Commercial applications require devices designed around materially higher usage, and Precor’s expertise should be highly additive.”
Telsey Advisory Group’s Dana Telsey raised her price target on Peloton stock to $180 from $145 on the heels of the deal. She argues that Precor can help the company increase its annual sales, accelerate production, and shorten lead times.
“We remain positive on the story as we expect demand for Peloton’s connected fitness products to remain strong well into 2021 as the adoption of digital and at-home fitness is creating long-term structural changes in consumer behavior,” she wrote. “Peloton also stands to gain further market share as it brings to the US market its lower-priced Tread in 2021.”
Write to Connor Smith at [email protected]