Peloton Interactive Inc. (NASDAQ: PTON) is in the process of buying fitness equipment company Precor for USD420 Million as a means to acquire manufacturing capabilities and new growth opportunities. The company’s shares jumped 11.2% to an all time high Tuesday following the announcement.
According to Telsey Advisory Group analyst Dana Telsey, the agreement could up Peloton’s annual sales by USD480 Million to USD500 Million, if Peloton preserves Precor’s revenue. The deal is anticipated to finalize by early next year. The company has said that once closed, Precor will become a business unit within Peloton, but will keep making its own branded products.
“We have seen a ton of growth. No one would wish a global pandemic on anybody, but it’s been a tailwind for our business,” Peloton President William Lynch said. “Keeping up with that growth, which has been a moving target, has been a big company priority.”
“As we’ve been investing in scaling our manufacturing, this is an area where Precor is very strong,” he added.
The transaction will enable Peloton to quicken production and slash lead times. In a note to clients, Telsey wrote that the improvements “should boost sales and improve the customer experience.” Furthermore, she increased her price target on shares from USD145 to USD180.
Amid the pandemic, the demand for Peloton’s exercise machines have skyrocketed, delaying its supply chain, as customers desperately seek at-home work out methods. The deal with Precor will provide an over 625,000 square foot manufacturing space as well as an additional 100 research-and-development workers.
“Increased manufacturing capacity should help alleviate the biggest impediment to growth,” KeyBanc Capital Markets analyst Ed Yruma said in a client note. He upped his price target from USD160 to USD185.
Peloton shares have skyrocketed 400% year to date.