Barrington Research Initiates Coverage On Primo Water

Barrington Research initiated coverage on Primo Water Corporation PRMW with an Outperform rating and $6.50 price target.

Analyst Michael Petusky noted that “Primo’s water services are currently available in approximately 16,500 retail stores. In addition, there are 7,000 locations which sell Primo dispensers, but do not offer full water services (i.e. container exchange and refill). The company’s longer-term goal is to be in 50,000-60,000 retail locations and we believe this goal is achievable.”

“A key driver in reaching [the above] goal will be increased penetration within existing accounts. In fact, Primo’s top 10 customers represent an incremental opportunity of 25,000 locations. Furthermore, the relatively new partnership with DS Waters (signed in late 2013) should add about 3,000 locations to Primo’s overall footprint over the next six to nine months,” according to Petusky.

Part of Petusky’s investment thesis is that “soft drink consumption actually peaked in 1998. This shift in consumer preferences has been driven, in part, by various government-related campaigns to promote healthier eating and drinking habits coupled with consumer education on the negative health impact of excessive sugar consumption.”

The target price was based on attaching a 12x multiple to the firm’s 2015 EV/EBITDA estimate and a 10.5x multiple to the 2016 EV/EBITDA expectation.

Primo Water Corporation recently traded at $4.30, up 1.42 percent.