National Beverage Shares 'All Fizzed Up,' Credit Suisse Initiates At Neutral

Credit Suisse’s Laurent Grandet believes that while National Beverage Corp. FIZZ has meaningful optionality going forward to drive incremental growth, margin expansion and shareholder value, the current stock valuation already reflects these opportunities.

Grandet initiated coverage of the company with a Neutral rating and price target of $55.

Growth Drivers

“We see a number of avenues to drive growth in the years ahead including (1) growing in existing distribution channels; (2) expanding distribution by entering new channels, especially c-stores; and (3) penetrating on-premise accounts,” the analyst mentioned.

In addition, Grandet believes that LaCroix, National Beverage’s largest brand, is “ideally” position in the rapidly growing flavored sparkling water segment.

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In fact, the analyst mentioned that while The Coca-Cola Co KO and PepsiCo, Inc. PEP have launched similar products under their Dasani and Aquafina brands, respectively, neither has the same credentials as LaCroix in terms of flavor selection, clean label and health benefits.

“This is evidenced by the fact that LaCroix is growing retail sales at around 70 percent driven primarily by velocity (same-store sales) growth, which is very encouraging,” Grandet elaborated.

Margins

On the other hand, National Beverage’s margins are meaningfully below peer, possibly due to LaCroix’s relatively low retail price.

“While we are expecting around 300–400 bps of margin expansion over the coming few years owing to premiumization and mix enhancement, we think the low level of profitability will keep a ceiling on the valuation multiple,” the analyst added.

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