Investors are likely paying attention to National Beverage (FIZZ 0.89%) these days. The stock is up a whopping 110% over the past 12 months, and its colorful 81-year-old CEO Nick Caporella has a habit of issuing eccentric press releases full of all-caps sentences like, "THE OBSCURE SILVER LINING IS A UNIQUELY-INDUCED OPPORTUNITY."
Despite all the weirdness and the big gains this year, analyst Pablo Zuanic of Susquehanna Research just raised his price target on National Beverage to $150 -- 40% above where the stock sits today -- well above the other two analysts that cover the stock. Here's why.
All about La Croix
In case you are late to the sparkling water party, National Beverage's success is almost entirely due to the sparkling water brand La Croix. National Beverage actually bought the brand in 1996, but La Croix has taken off in recent years, as millennials increasingly choose drinks without any sweeteners. I personally discovered La Croix only this year and am now an admitted addict.
It is somewhat frustrating that the company doesn't break out La Croix sales individually, but rather groups La Croix in with its other Power+ brands, which includes Rip It energy drinks and the Everfresh and Mr. Pure juice brands.
Together, the Power+ portfolio grew 37.9% last quarter, but you can bet that La Croix posted higher growth than that. Analysts estimate that La Croix makes up about half of National Beverage's sales, but there is no way of knowing for sure, and the company doesn't hold regular quarterly conference calls so there is no way for them to ask questions.
Still, with La Croix growing at a torrid pace, and with National Beverage the subject of buyout rumors, the company trades at a huge 42.5 times price to earnings ratio. That makes another 40% return seem challenging.
How to get to $150
Zuanic incorporates a 25% chance of a buyout in his valuation and values the other 75% on a forward price to earnings ratio. A buyout would make some sense as La Croix could fit nicely into a portfolio of a much larger beverage company such as Pepsi or Dr. Pepper Snapple Group. Coca-Cola (KO 0.15%) looks as though it has already made its sparkling water gambit, buying the lesser-known Topo Chico sparkling water brand earlier this year for $220 million. That's far less than National Beverage's nearly $5 billion market capitalization.
In a buyout scenario, Zuanic believes La Croix would fetch nine times its forward price-to-sales multiple, while the rest of national beverage would only sell for 1.5 times sales. For the fiscal year 2019 (National Beverage's fiscal year ends in April), the highest analyst revenue estimate (likely Zuanic's) is about $1.14 billion. Assuming La Croix makes up 60% of the company by then, that means the analyst could achieve about a $6.8 billion valuation or $148 per share.
For the other 75% of his valuation, Zuanic values FIZZ at 35 times forward earnings net of cash. Zuanic must have just upped his EPS estimate for 2019 since the highest estimate according to Yahoo finance is $3.60 in 2019, which would only yield a $130 valuation.
A battleground beverage
National Beverage has quickly become a battleground stock with one of the widest analyst price target ranges I've ever seen. Of the three analysts that cover the stock, Maxim has a $40 target, Credit Suisse has an $82 target, and Susquehanna just raised its target to $150 from $108. Zuanic himself seems to be getting his bearings, as he just initiated coverage in early October with a $135 target, then downgraded to $108 at the end of the month, and then recently increased his target to $150, all in the absence of an earnings release!
Investors and analysts alike seem to be unable to decide whether La Croix is a game-changing brand for the long term (in which case National Beverage may be worth $150 or more), or a passing fad (worth $40 or less).
Peter Lynch once said that retail investors can get ahead of Wall Street analysts if they truly know and use a particular product or service. Certainly, if you had discovered La Croix and bought FIZZ a year or two ago, you'd be very happy right now. It might just be a uniquely induced opportunity.