Needham analyst Gerald Pascarelli recently initiated coverage on Celsius Holdings, Inc. (NASDAQ: CELH) with a Buy rating and a price target of $38. This positive outlook stems from Celsius’ position as the third-largest player in the energy drink market, poised to capitalize on several key trends.
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Growth Drivers for Celsius Holdings
Pascarelli highlights the growing demand for healthier, zero-sugar beverages as a significant tailwind for Celsius. This trend aligns with a broader rebound in the energy drink category, creating a favorable environment for revenue acceleration. Furthermore, easier year-over-year comparisons are anticipated, setting the stage for potentially strong financial performance.
While Celsius experienced its first year-over-year share loss recently, the category’s return to a high single-digit growth rate is encouraging. Continued growth in the overall market, coupled with easier comparisons and planned product innovations for 2025, could significantly benefit Celsius.
Addressing Operational Challenges
Addressing prior challenges, Pascarelli notes that inventory optimization issues appear to be resolving. This improvement should lead to better alignment between sell-through rates and reported financial results, enhancing transparency and potentially boosting investor confidence.
Pascarelli’s financial projections for Celsius are optimistic. He estimates full-year 2024 revenue and EPS of $1.365 billion and $0.68, respectively. For fiscal year 2025, he projects revenue of $1.548 billion and EPS of $0.93. These figures suggest a significant growth trajectory for the company.
In its most recent quarterly report, Celsius reported third-quarter earnings per share of $0.00, missing the street view of $0.04. Quarterly sales of $265.70 million (down 31%) also fell short of analyst expectations of $267.11 million.
Evaluating Celsius as an Investment
When assessing a potential investment in Celsius, investors should consider various factors beyond valuation metrics and price action. While Celsius does not currently pay a dividend, understanding the company’s capital allocation strategy is crucial.
One way companies return value to shareholders is through share buyback programs. These programs can provide price support and signal management’s confidence in the company’s future prospects. Staying informed about Celsius’ latest news and announcements will help investors understand its approach to buybacks.
As of Friday’s close, CELH shares were trading at $27.94, up 0.17%. This recent price action reflects a slight positive movement in the stock.
Conclusion: A Promising Outlook?
Celsius Holdings operates in a dynamic and competitive market. While challenges remain, the company appears well-positioned to benefit from favorable industry trends and its focus on healthier energy drinks. Pascarelli’s bullish outlook, coupled with the company’s efforts to address operational challenges, suggests a potentially compelling investment opportunity. However, investors should conduct thorough due diligence and consider their individual risk tolerance before making any investment decisions.
