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'Good Fit': Street Reacts To Peloton's $420M Precor Acquisition

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'Good Fit': Street Reacts To Peloton's $420M Precor Acquisition

Reactions to Peloton Interactive Inc (NASDAQ: PTON) acquiring commercial fitness equipment maker Precor for $420 million are mostly positive.

'Good Fit': Precor makes fitness machines, cardio equipment, strength equipment, and treadmills and reportedly generated $420 million of revenue in 2018. Revenue was likely down significantly in 2020, according to BofA Securities analyst Justin Post, and Peloton took advantage of Precor's financial pressure.

Peloton appears to have paid around one time historical revenue and more than two times current year revenue versus Peloton's current valuation of 12 times 2020 revenues.

Aside from a favorable price tag, the acquisition of Precor is a "good fit" as it makes "relatively high quality" equipment. The acquisition will also help Peloton build new U.S. manufacturing for next year's holiday season and help establish a presence in new commercial markets.

Post maintains a Buy rating on Peloton's stock with a $150 price target.

Related Link: Apple Fitness+ Riding On Halo Effect Will Leave Peloton Trailing In Subscriptions, Munster Says

Supports Long-Term Growth: Peloton's acquisition of Precor should help it eliminate its biggest headwind to growth by providing additional manufacturing capacity, KeyBanc Capital Markets analyst Edward Yruma wrote in a note. Specifically, Peloton gains 625,000 square feet of new U.S. capacity, including in-house tooling and fabrication.

Peloton also gains Precor's North Carolina facility that focuses on a "key area of interest" in strength.

Precor boasts a support network in around 100 countries with offices across the world. As Peloton continues to "take a deliberate approach" to its global expansion, Precor's existing facilities will help guide and facilitate the process.

Yruma maintains an Overweight rating on Peloton's stock with a price target lifted from $160 to $185.

Further Stock Gains Ahead: Peloton has seen strong demand since the start of the COVID-19 pandemic but this created long delays, Tigress Financial Partners CIO and Director of Research Ivan Feinseth wrote in his newsletter. The acquisition of Precor adds two U.S.-based manufacturing facilities along with its existing third-party manufacturers and a Taiwan-based facility.

"I believe further upside exists from current levels and will continue to recommend purchase and become a more aggressive buyer on any pullbacks," he wrote.

PTON Price Action: Shares of Peloton hit a new all-time high of $166.23 Tuesday morning and were up 12% at publication time.

Latest Ratings for PTON

DateFirmActionFromTo
Feb 2021Argus ResearchMaintainsBuy
Feb 2021RosenblattMaintainsBuy
Feb 2021Goldman SachsMaintainsNeutral

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