Shares of Lululemon (LULU) are on the rise on Tuesday after announcing a $500M deal for in-home fitness company Mirror. Commenting on the news, MKM Partners analyst Roxanne Meyer called the acquisition "highly attractive and synergistic" for Lululemon as it further connects customers to its brand by "integrating digital and physical experiences." Meanwhile, Roth Capital analyst George Kelly boosted Peloton's (PTON) price target, saying that while the deal "raises the competitive bar", it also brings more attention to the at-home fitness space from large fitness, apparel, private equity, and tech companies.

MIRROR ACQUISITION: Lululemon Athletica announced that it has entered into a definitive agreement to acquire Mirror, an in-home fitness company that created an interactive workout platform that features live and on-demand classes, for a purchase price of $500M. According to the company, "This transaction builds on a successful partnership between the two companies, which began in mid-2019 with an initial investment in Mirror by Lululemon, and also includes a content partnership which brought sweat and meditation classes to the Mirror platform by Lululemon's Global Ambassadors".

The purchase price is expected to be paid from the company's primary sources of liquidity, which include over $800M in cash, its existing $400M revolving credit facility, and a new one-year, $300M revolving credit facility. Following completion of the transaction, Mirror will operate as a standalone company within Lululemon. The transaction is subject to customary closing conditions and is expected to close in the second quarter of fiscal 2020.

'HIGHLY ATTRACTIVE, SYNERGISTIC': MKM Partners analyst Roxanne Meyer kept a Buy rating and a $378 price target on Lululemon after the company announced a $500M acquisition of in-home fitness company Mirror. The analyst noted that the business is projected to be modestly dilutive this year and modestly profitable in the fiscal year 2021, as its profitability model is tracking "well ahead" of its competitors. Overall, Meyer sees the deal as "highly attractive and synergistic" for Lululemon as it further connects customers to its brand by "integrating digital and physical experiences."

Piper Sandler analyst Erinn Murphy also favors Lululemon’s acquisition of Mirror, keeping an Overweight rating and a $365 price target on the shares. With several consumer behaviors shifting in the wake of COVID-19, the acquisition is a "natural extension of Lululemon's already strong ecosystem," Murphy contented. The analyst sees "significant expansion opportunities" for Mirror.

Also commenting on Lululemon’s announcement that it will acquire in-home fitness company Mirror for $500M, Morgan Stanley analyst Kimberly Greenberger said she believes the company "further bolstered its competitive advantage in a post-COVID-19 world" with this deal. While she sees meaningful revenue synergies and is "incrementally positive" on Lululemon following the takeover announcement, Greenberger keeps an Equal Weight rating and a $306 price target on the shares.

ROTH SAYS BUY PELOTON: Meanwhile, Roth Capital analyst George Kelly raised his price target on Peloton to $66 from $51, while keeping a Buy rating on the shares. The analyst acknowledged that Lululemon’s acquisition of Mirror "raises the competitive bar," but believes shares of Peloton should be bought on any potential weakness as the deal will bring even more attention to the at-home fitness space from large fitness, apparel, private equity and tech companies. Most major at-home fitness equipment companies have raised capital or been acquired over the past several years, and Peloton "may eventually follow the same route," he added. Kelly estimates that Mirror has approximately 75,000 subscribers compared to Peloton's 1M, and sees a "huge" market since there are 70M gym subscribers in the U.S. Further, the analyst believes Peloton's continued momentum is not reflected in consensus estimates and thinks the stock's valuation has "room to run."

PRICE ACTION: In morning trading, shares of Lululemon have gained almost 5% to $308.49, while Peloton’s stock has advanced more than 2% to $58.58.