On Tuesday, Goldman Sachs (NYSE:GS) revised its stance on Fevertree Drinks Plc (LON:FEVR:LN) (OTC: FQVTF) stock, downgrading the rating from Neutral to Sell.
The investment firm also adjusted its price target to 1,050p from the previous 1,075p. The downgrade comes amid concerns about the company's earnings potential and valuation.
The analyst from Goldman Sachs noted that while Fevertree's projected earnings per share (EPS) growth of 18% from fiscal year 2025 to 2027 is appealing, it is primarily due to easing costs of goods sold (COGS) rather than a significant acceleration in underlying sales. This shift in growth drivers may not align with investor expectations for Fevertree, which is commonly viewed as a growth stock.
Investors may find the forecasted medium-term organic sales growth rate of 7.4% less compelling when compared to the company's current valuation, which stands at 31 times the calendar year 2025 estimated price-to-earnings (P/E) ratio. The analyst expressed a belief that the market's current valuation of Fevertree is demanding, given the modest sales growth outlook.
Goldman Sachs also anticipates potential downside risks to Fevertree's EPS, with their estimates for fiscal years 2024, 2025, and 2026 being 3%, 4%, and 7% lower, respectively, than the consensus. These revised estimates underpin the firm's decision to downgrade the stock.
The price target reduction reflects the analyst's revised earnings expectations and the perceived challenges in Fevertree's growth trajectory. The new target of 1,050p represents a slight decrease from the previous target but underscores the cautious outlook from Goldman Sachs on the stock's future performance.
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