Celsius Holdings, Inc. CELH jumped nearly 12% higher on Monday after the announcement of it entering a long-term distribution partnership with soft-drink behemoth PepsiCo, Inc. PEP, a move that analyst Gianni Di Poce expected.
What Happened: The energy-drink maker stated that by making the change, the product will be available on more convenience store shelves, where about 70% of energy drinks are sold.
Di Poce called this a rumor in his weekly “Benzinga Pro Insider Report,” before the deal was announced. “There is a rumor circulating that Pepsi is looking to purchase an energy drink company and that [Celsius] CELH is a potential target,” Di Poce wrote to subscribers of his weekly report.
According to a joint statement from the two firms, PepsiCo will provide $550 million in net cash in exchange for convertible preferred shares. The announcement also stated that the shares involved in the transaction were valued at $75 each, representing an estimated 8.5% stake in Celsius stock on an “as-converted basis.”
As part of the deal, Pepsi will nominate a director to sit on the Celsius board.
“The company has grown revenue from $52 million to $314 million over the past three years,” Di Poce wrote.
“CELH has a ridiculously high valuation,” the analyst said. “P/E [price to earnings] is 646, Price-to-Sales is 16.48, and EV [enterprise value] to EBITDA is 934, but this is a sign that demand is very high for this stock.”
Revenue for Celsius reached $104.3 million in 2021, nearly tripling the $35.7 million it collected in the previous year. Domestic revenues were $95.9 million, and net profits for the business fell from $8.5 million to $3.9 million in 2021.
While operating income was $7.9 million in 2020, it decreased to a $4.1 million loss a year later due to increases in selling, marketing, and general and administrative costs.
EBITDA for 2021 was reported by Celsius at $33.6 million, more than double the $16 million reported for 2020.
“From a technical perspective,” Di Poce said, “CELH just broke out from a multi-month rounding bottom pattern, which could take prices back to their former all-time highs.”
Why It’s Happening: “CELH offers a hybrid opportunity for traders to position themselves with a consumer staples stock exhibiting strong growth,” said Di Poce. “Typically, consumer staples stocks are defensive in nature, but Celsius has growth numbers like a tech stock.”
Action Plan: “I am bullish on CELH so long as the stock remains above $77-$78,” the analyst wrote. “The upside target is $110-$112.”
Di Poce is an analyst at The Mercator, a research company dedicated to the study of economic and financial market trends.
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