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Investing.com - Morgan Stanley (NYSE:MS) initiated coverage on Primo Brands Corp. (NYSE:PRMB), a $4.7 billion market cap company, with an Overweight rating and a $38.00 price target, citing an "opportune long-term entry point" following recent share weakness. According to InvestingPro data, the stock has delivered an impressive 47% return over the past year.
The stock has declined nearly 20% since early April due to weaker scanner data, which Morgan Stanley attributes to unusually wet spring weather and short-term integration challenges in the direct delivery business. While the company is not currently profitable, InvestingPro analysts expect both net income and sales growth this year, suggesting these temporary challenges are now priced into the stock.
Morgan Stanley sees a compelling risk-reward ratio, noting that Primo Brands trades at only 9x 2026 estimated EV/EBITDA, representing a 20% discount to U.S.-focused peers facing health and wellness challenges. With current EV/EBITDA at 16x and revenue growing at 21% in the last twelve months, InvestingPro’s Fair Value analysis suggests the stock is currently undervalued. The firm expects headwinds to dissipate in the second half of the year with more normal summer weather, all production lines now operational at the previously tornado-damaged Texas plant, and improving service levels in direct delivery.
The company’s targeted merger synergies of $300 million by year-end 2026, equivalent to approximately 23% of 2024 pro forma Adjusted EBITDA, enhance visibility around profit growth and provide protection against unexpected topline or cost pressures, according to Morgan Stanley.
The $38 price target is based on an 11x 2026 estimated EV/EBITDA multiple, representing a 5% discount to U.S. beverage peers PepsiCo (NASDAQ:PEP), Constellation Brands (NYSE:STZ), and Keurig Dr Pepper (NASDAQ:KDP) due to higher private label penetration in Primo’s bottled water category and potential pressure from further sponsor stock sales.
In other recent news, Primo Brands has been the focus of several analyst reports following its merger with BlueTriton. Barclays (LON:BARC) initiated coverage with an Overweight rating, highlighting the merger’s potential to drive a 3-5% growth in revenue over the coming years. BofA Securities also rated Primo Brands as a Buy, projecting $300 million in EBITDA by 2026, while setting a price target of $42.00 due to expected cost synergies. Mizuho (NYSE:MFG) gave an Outperform rating with a $43.00 price target, citing the company’s alignment with consumer trends towards healthier beverage options.
RBC Capital maintained its Outperform rating and $40.00 price target, noting the company’s strong fundamentals and minimal tariff exposure. Additionally, Primo Brands announced a secondary offering where two stockholders will sell 47.5 million shares, with proceeds going to the sellers. As part of this, Primo Brands will repurchase $100 million worth of its Class A common stock. These developments indicate a period of strategic positioning and financial maneuvers for Primo Brands as it navigates market dynamics.
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