Peloton shares surged 8.3% in the extended trading session on Monday as the interactive fitness platform entered into an agreement to acquire Precor, a global commercial fitness equipment provider, for $420 million. The transaction is expected to close next year.
Precor is a division of Finnish sporting goods company Amer Sports, which is owned by an investor consortium including ANTA Sports and Tencent Holdings Limited. Peloton (PTON) expects the Precor acquisition to establish its U.S. manufacturing capacity, boost research and development capabilities and accelerate its commercial market penetration.
Peloton plans to produce connected fitness products in the U.S. before the end of 2021. The Precor acquisition adds 625,000 square feet of U.S. manufacturing capacity, with in-house tooling and fabrication, product development, and quality assurance capabilities in Whitsett, North Carolina and Woodinville, Washington. (See PTON stock analysis on TipRanks)
Currently, Peloton’s manufacturing network is comprised of third party manufacturers and the Tonic facilities (acquired in 2019) based in Taiwan. The company has been facing supply chain issues and struggling to meet robust demand for its products amid the pandemic. The Precor acquisition will likely help in strengthening the company’s manufacturing capabilities and addressing the strong demand.
In reaction to the acquisition, Rosenblatt Securities analyst Bernie McTernan reiterated a Buy rating on Peloton with a $145 price target. The 5-star analyst stated, “We see the Precor acquisition by PTON as a positive, allowing the company to jump start a variety of growth initiatives which would have taken an investment of time and dollars to do organically such as diversifying manufacturing into the US, growing sales channels to commercial customers and potentially setting the stage for an asset light geographic expansion.”
“Importantly, we also see this investment of $420M (cash) as a sign of confidence by management in the trajectory of their business, which is especially relevant in light of the vaccine rollout,” added McTernan.
Overall, Peloton scores a Strong Buy analyst consensus based on 19 Buys and 3 Holds. With a whopping 408% year-to-date rise in shares, the average price target of $142.38 indicates a possible downside of 1.4% from current levels.
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