Key points
- Bank of America’s cautious comments triggered a sell-off that took CELH more than 25% below its December 2023 record high, but ratings from other analysts suggest the decline is an opportunity.
- Since the company has limited foreign presence and its tie-up with Pepsi is in its early stages, the growth path is long.
- Over the past 15 years, CELH has generated an annualized shareholder return of 40% compared to 15% for the U.S. stock market as a whole.
- 5 stocks we prefer to Celsius
With temperatures well below freezing in many parts of Canada, it’s fitting that Celsius Holdings, Inc. NASDAQ:CELH It’s heading north.
Last week, the maker of fitness energy drinks announced that it is expanding its distribution agreement with PepsiCo Inc. NASDAQ:PEP include Canada. The company also reached a sales and distribution agreement Suntory Drink & Food Limited OTCMKTS: STBFY, which will roll out its healthier energy drinks across the UK and Ireland. Delivering on its promise to strengthen its international footprint, Celsius aims to build on an already strong growth track record.
The move arrived a few days later Bank of America NYSE:BAC downgraded Celsius shares from Buy to Neutral, saying market share is “unexpectedly declining.” The stock has seen steady momentum, primarily due to its partnership with Pepsi which is introducing Celsius cans to more stores and geographies. B of A’s cautious comments, however, triggered a sell-off that took CELH more than 25% below its December 2023 record high.
However, in recent days, Wall Street has come to the company’s defense.
On Monday, Wedbush reiterated its Buy rating on Celsius, becoming the third consecutive research firm to do so following the B downgrade from A. Last week, Piper Sandler and Roth MKM reiterated their bullish views, suggesting that the unusual drop in the title represents an opportunity. The trio offered price targets between $70 and $76, implying nearly 50% upside from current levels. B’s A’s $65 target also implies return potential of more than 25% from Monday’s close.
It’s easy to see why the Street was quick to seize on the crisis.
Celsius is growing about 10 times faster than the overall U.S. energy drink market. It has more than doubled its domestic market share since last year and has become a formidable threat Monster Beverage Corporation NASDAQ: MNST and Red Bull. Even if signs of slowing sales emerge, Celsius will likely experience growth above the category (and well above the beverage industry).
How is Celsius winning?
Celsius has carved out a winning niche in the rapidly growing energy drink space by offering consumers a line of healthier energy drinks, on-the-go powder packets and protein bars. Designed for both fitness enthusiasts and health-conscious office workers, the products are sugar-free and available in a variety of unique flavors. Since the company has limited foreign presence and its tie-up with Pepsi is in its early stages, the growth path is long. Any temporary setback in market share will likely be just temporary.
ON Amazon.com Inc. NASDAQ:AMZN, Celsius is now the best-selling energy drink. It boasts a market share of 21.4% compared to 18.6% and 13.0% for Monster and Red Bull respectively. In traditional channels, it represents 39% of category unit growth. As convenience store shelves are flooded with new energy drinks, Celsius is at the forefront.
If Celsius can replicate its successful program in new markets – including its “better-for-you” energy message – international growth will likely be explosive. Its North American business, which accounts for 96% of revenues, achieved sales growth of 108% in the first three quarters of 2023. The brand is likely to resonate with foreign exercise enthusiasts looking for a fuel cleaner for the body and find its way into new life paths as it has in the United States.
When does Celsius report earnings?
Celsius has yet to announce the date of its fourth quarter financial results, but it is likely to be in early March 2024. As usual, market expectations will be sky high. But if history repeats itself, the company will perform better.
Celsius topped consensus revenue and earnings forecasts for each of the first three quarters of 2023. It reported record third-quarter revenue of $385 million, driven by increased distribution points, increased customer awareness and more SKU per store.
For the fourth quarter, analysts expect revenues of $330 million, representing 85% year-over-year growth. Profits are expected to triple. However, the energy drink maker has routinely topped Street estimates and could get a boost from holiday shopping traffic.
Over the past 15 years, CELH has generated an annualized shareholder return of 40% compared to 15% for the U.S. stock market as a whole. With international growth still to come, it would not be surprising to see this torrid pace maintained over the next 15 years.
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