Not every stock has participated in the summertime rally. Celsius Holdings (CELH 1.22%) has fallen sharply, shedding nearly half of its value since hitting an all-time high in March. The company behind the now widely available functional beverages that help drinkers burn fat and calories when accompanied by cardio activity has lost its carbonation. Is the fizz gone forever?
Two analysts this week have slashed their price targets on the stock, and they have buy ratings on Celsius. With bulls like that, who need bears? It's not easy to be an optimist in a climate of sharply decelerating growth, but things don't have to end badly for the suddenly out-of-favor beverage stock.
NASDAQ: CELH
Key Data Points
Lowering the bar
Sean McGowan at Roth MKM became the latest Wall Street pro to pare back his near-term expectations for the stock, lowering his target from $87 to $75 on Thursday. Energy drinks in general have experienced a slowdown in sales lately. He also points out that Celsius investor and distributor PepsiCo recently opined that the unusually warm summer has consumers trading energy drinks for water and other hydration-focused beverages. Will sales growth get back on track as the weather starts to cool in the fall?
Robert Moskow at TD Cowen was the other analyst making a move this week, revising his price target from $85 to $68. He's sticking to his estimates for the second quarter that ended in June, but he's lowering his full-year forecasts based on the unflattering retail sales tracking data for energy drinks in general and Celsius in particular. Moskow feels that his fellow analysts are aiming too high with their projections for this year as well as 2025 in light of slowing sales and PepsiCo responding with inventory reductions.
The good news is that new price targets of $68 and $75 represent 34% and 48% in near-term upside, a strong return in any market climate. The bad news is that they're not alone and this probably won't be the end of the cuts. It's a long list of analyst recalibrations since third-party reports began surfacing around Memorial Day detailing the slowdown at Celsius. One analyst even slashed his price target twice -- two weeks apart -- last month.
Image source: Getty Images.
Raising the hope
Being an optimist isn't easy these days, but there are some signs that better days could be ahead for Celsius. For starters, even with the shares down 49% since peaking in March it's still somehow trading higher than its February low. Yes, the stock did double in a matter of weeks. It's a volatile investment, and like the weather it can swing wildly over time.
Sizing up Celsius at the current starting line offers an interesting value proposition for investors. The stock is trading at 47 times this year's projected earnings and 36 times what analysts are modeling for next year. Yes, Moskow at TD Cowen argues that his fellow Wall Street pros are perched too high, but history shows us that reality plays out the other way around. Celsius has cracked open a can of five consecutive quarters of double-digit percentage beats on the bottom line.
| Quarter | EPS Estimate | EPS Actual | Beat |
|---|---|---|---|
| Q1 2023 | $0.07 | $0.13 | 86% |
| Q2 2023 | $0.09 | $0.17 | 89% |
| Q3 2023 | $0.16 | $0.30 | 88% |
| Q4 2023 | $0.15 | $0.17 | 13% |
| Q1 2024 | $0.27 | $0.19 | 42% |
Data source: Yahoo! Finance. EPS = earnings per share.
Growth has slowed for the company that has seen annual sales more than double in each of the last three years. The 37% increase it posted in its latest quarter is even higher than what the market is expecting in the near future. Analysts see revenue growing 27% this year and again in 2025. However, the model's scalability and its partnership with PepsiCo finds bottom-line models growing faster, rising 40% this year and 30% next year. If you didn't know about the meteoric numbers that Celsius was posting coming out of the pandemic it wouldn't be outlandish to pay 36 times next year's earnings based on its near-term estimates.
Things can also get better. International sales are just 5% of the revenue mix right now, but that segment is finally starting to grow faster than stateside sales for Celsius.
Investors may be nervous heading into next month's potentially problematic second-quarter report, but hasn't that already been discounted? The pessimism is thick, possibly to the point where even a so-so report can come as a sigh of relief. With more than 9% of the outstanding shares sold short it won't take much of a shift in sentiment to trigger a short squeeze. PepsiCo may also take advantage of the recent markdown to add to its position in Celsius. The weather is hot. The stock is not. Things don't always have to stay that way.
