Peloton Breaks Out After Key Acquisition

Peloton Interactive Inc. (PTON) has broken out to an all-time high after announcing the acquisition of fitness equipment manufacturer Precor, in a transaction valued at $420 million.  The at-home workout juggernaut has struggled to keep up with skyrocketing demand in 2020 and the acquisition should ease considerable backlogs. It also gives one of the market’s hottest companies the sophisticated tools it needs to research and manufacture new products.

Surging Momentum

The stock has rallied nearly every session in the last two weeks, returning to October resistance at 139.75 on Thursday of last week. It ticked up to a new high on Monday and rallied another 10% in Tuesday’s pre-market, in reaction to last night’s press release. Accumulation readings have surged to new highs as well, setting the stage for a bull run that could last well into the first quarter of 2021 and lift the stock above 200.

Telsey Advisory Group analyst Dana Telsey raised her target to $180 this morning, pounding the table while noting the acquisition will help Peloton “increase its annual sales, start manufacturing its products in the U.S.A., accelerate production and shorten lead times, increase the flexibility of its manufacturing capabilities, onboard around 100 new research and development employees, and gain access to Precor’s commercial customers, enabling the ability to cross sell.”

Wall Street and Technical Outlook

Wall Street consensus was highly bullish ahead of the news, which should generate a wave of fresh upgrades and higher price targets. Peloton is now rated as a ‘Strong Buy’ based upon 20 ‘Buy’, 3 ‘Hold’, and 0 ‘Sell’ recommendations. Price targets currently range from a low of $110 to a Street-high $185 while the stock has opened Tuesday’s U.S. session about $13 above the median $146 target and $25 below the high target.

Peloton topped out in October and pulled back in a rounded correction that found support after slicing through the 50-day moving average in November. It spent more than a month reestablishing support that that level and turned sharply higher on Dec. 10. Tuesday’s breakout gap will be hard to fill, given rapidly-increasing momentum, but this is an expensive stock to own, with a market cap higher than one-third of all Nasdaq-100 components.

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Disclosure: the author held no positions in aforementioned securities at the time of publication.