Roth Keeps Buying SodaStream; Deutsche Bank Less Bullish

In a report published Thursday, Roth Capital analyst Anton Brenner maintained a Buy rating and price target of $29 on Sodastream International Ltd SODA. The analyst expects gradual recovery to resume for the company in 2H.

Following the transition to a health and wellness company, SodaStream’s sales and margins have sharply declined, driven by the U.S. inventory stocks being depleted. In addition, the strength of the U.S. dollar has also negatively impacted revenues.

“We view the product changes favorably and we anticipate a rebound commencing in 2H,” Brenner said.

However, the company reported lower than estimated Q2 revenues, with a 28 percent decline, while the EPS also came in below the estimates. While FX led to a decline in revenues, it also led to a reduction in the reported costs. This led to a net negative impact on the operating income of $4.5 million.

According to the Roth Capital report, “Two new soda maker models were only introduced late in Q2, and the new flavor lineup is being shipped beginning in August. Both the new flavors and soda maker models represent a significant upgrade in our opinion.”

While Germany is now SodaStream’s largest European market, the Austria and Switzerland markets also increased. In Asia, Japan and Australia proved to be strong markets for the company during Q2.

The analyst expects the company to undertake global repositioning in stages. SodaStream is already implementing additional sales drivers, with the company intending to make the home delivery of gas available in the US by the end of the year and introduce two new soda maker models in 2016.

Deutsche Bank: 'Too Soon To Get Excited'

In a report published Thursday, Deutsche Bank analyst Bill Schmitz Jr maintained a Hold rating and price target of $18 on SodaStream. The analyst believes that there are limited short-term catalysts for the stock.

“Facing distribution losses, weaker than expected US penetration, distributor challenges and currency headwinds, we can’t find enough short-term catalysts to get more excited about the story here until the change in strategy gets more traction,” Schmitz Jr said.

While the transition to health and wellness appears to be a good idea at present, the analyst expressed uncertainty about the consumer moving to a soda maker instead of settling for the packaged and cheaper version. In addition, the company would need to make incremental investments for its relaunch.

The company reported its 2Q15 EPS marginally below the consensus, with organic sales declining due to lower demand in the US and France. Sales declined 43.6 percent in the US and 16 percent in Western Europe. Sparkling water maker starter kit sales fell 35 percent, while there was a 37.5 percent decline in units.

Gross margin was down 50.3 percent, coming in below the Street consensus, as did the EBIT.

According to the Deutsche Bank report, “Coming off a low base, earnings upside here could be considerable and this could become an interesting small cap value stock, but the company would need to slash spending across the P&L, including marketing support, and we don’t believe they will explore that option until the sparkling water relaunch plays out.”

In addition, the analyst believes that lower advertising support would lead to lost relevance and further losses in distribution, which the management might already be aware of.