On Thursday, Piper Sandler maintained an Overweight rating on shares of Celsius Holdings (NASDAQ:CELH) but reduced the price target to $50 from the previous $65. This adjustment comes as the beverage company faces a challenging environment with slower momentum in the US energy category and operational headwinds.
The firm's analysis indicates that PepsiCo (NASDAQ:PEP) has expedited its inventory reduction in the third quarter of 2024, aiming to decrease stock levels by $100-120 million as part of its supply chain optimization efforts. Although no further inventory reduction is expected, significant operating de-leveraging in the third quarter is anticipated.
Retail trends in the United States have shown a slowdown, particularly in the energy category. This trend appears more pronounced in measured retail data compared to an all-channel perspective, suggesting a consumer shift towards purchasing bulk packs in club stores and online. The firm believes this shift could be temporary but has nonetheless updated its forward estimates to reflect a more conservative outlook for the U.S. market.
Consequently, Piper Sandler has revised its sales estimates for Celsius Holdings downward, from approximately $1,565 million to about $1,440 million for the year 2024, and from around $1,780 million to approximately $1,735 million for 2025. The new price target of $50 is based on a valuation of roughly 6 times the 2025 estimated enterprise value to sales ratio, a decrease from the prior multiple of around 8 times.
In other recent news, Celsius Holdings is facing a significant reduction in its inventory due to Pepsi's decision to decrease its stock by $100-120 million. This move is expected to result in a 22% drop in sales for Celsius, marking its first decline since the second quarter of 2018. The company's operating income is also projected to plummet by an alarming 80%, as it struggles to adjust its operating expenses in time.
Several financial firms have adjusted their price targets for Celsius in response to these developments. Jefferies reduced its target to $53 while maintaining a Buy rating, and Roth/MKM lowered its target from $65 to $45, also keeping a Buy rating. Moreover, BofA Securities decreased its target to $26, maintaining an Underperform rating, and Morgan Stanley (NYSE:MS) held its Equalweight rating and $50 price target due to concerns about decelerated sales growth.
Despite these challenges, Celsius reported a 23% increase in total revenue, setting a record at $402 million, and a 30% rise in international revenue to $19.6 million. The company managed to maintain its category growth leadership and expanded its shelf presence. These are the recent developments for Celsius Holdings, which continues to navigate the financial landscape amidst industry challenges.
InvestingPro Insights
To complement Piper Sandler's analysis, InvestingPro data sheds further light on Celsius Holdings' current financial landscape. As of the last twelve months leading up to Q2 2024, the company boasts a robust revenue growth of 56.5%, indicating a strong expansion despite recent market headwinds. The company's gross profit margin stands at an impressive 50.45%, showcasing its ability to maintain profitability in a challenging environment. Furthermore, with a P/E ratio of 31.23, Celsius Holdings is trading at a valuation that reflects its growth prospects.
InvestingPro Tips highlight that Celsius Holdings holds more cash than debt on its balance sheet, which could provide financial flexibility in uncertain times. Moreover, the stock's recent entry into oversold territory, as suggested by the RSI, may interest investors looking for potential entry points. For those seeking a deeper dive into the company's prospects, InvestingPro offers a wealth of additional tips, with 19 more available to guide investment decisions.
The firm's revised price target aligns with the InvestingPro Fair Value of $48.16, offering a potential upside from the current price of $32.39. With the next earnings date set for November 7, 2024, investors will be keenly watching how Celsius Holdings navigates the operational challenges ahead.
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