Morgan Stanley raises Zevia stock price target to $2.75

On Tuesday, Morgan Stanley (NYSE:MS) updated its outlook on Zevia PBC (NYSE:ZVIA), raising the price target to $2.75 from the previous $0.95, while keeping an Equalweight rating on the stock. Currently trading at $2.37, the stock has experienced significant volatility, with InvestingPro data showing a dramatic 128% surge over the past six months despite a recent 28% weekly decline. The adjustment comes in light of Zevia’s long-term growth prospects despite near-term challenges.

The company has signaled its intention to increase marketing efforts, introduce new products, and expand distribution in 2025. These initiatives are expected to drive positive results, although they will be partially offset by the negative impact of distribution losses in mass and club channels, as well as the discontinuation of the kids and Mixers product lines. According to InvestingPro data, Zevia maintains strong financial flexibility with more cash than debt on its balance sheet and a healthy current ratio of 2.56x, providing resources for these strategic initiatives.

Zevia has provided a sales forecast for FY25 that falls below expectations, ranging from $158 million to $163 million. The company also anticipates an adjusted EBITDA loss between $8 million and $11 million, which is more significant than the $6.8 million consensus. In response, Morgan Stanley has revised its FY25 EBITDA forecast for Zevia to a loss of $10 million, down from the previous estimate of a $6 million loss.

Despite these short-term headwinds, Morgan Stanley sees a brighter future for Zevia based on the evolving retail landscape. Retailers are increasingly focusing on developing the modern soda aisle, which emphasizes healthier options. This shift has already resulted in shelf space gains for the category and presents a long-term top-line opportunity for Zevia. With current revenue of $155 million and a gross profit margin of 46%, the company shows promising fundamentals. As a result, the firm has increased Zevia’s sales multiple from 0.3x to 0.8x, aligning with other companies with low visibility but high growth potential, like Oatly (NASDAQ:OTLY), which shares the same multiple. For deeper insights into Zevia’s valuation and growth potential, including 12 additional ProTips and comprehensive financial analysis, check out the detailed Pro Research Report available on InvestingPro.

Morgan Stanley’s revised price target reflects the substantial long-term total addressable market (TAM) for Zevia, acknowledging the potential for significant growth. However, the firm also notes that this outlook is theoretical at this stage, as evidenced by the company’s guidance for FY25, which remains below consensus.

In other recent news, Zevia PBC reported a mixed performance in its fourth-quarter 2024 earnings, revealing a larger-than-expected loss and revenue that fell short of projections. The company posted an EPS of -$0.09, missing the forecast of -$0.06, while revenue reached $39.5 million, below the expected $40.59 million. Despite these challenges, Zevia achieved a record gross margin of 49.2%. The company’s annual net sales for 2024 were $155.1 million, marking a 6.8% decline year-over-year. Looking forward, Zevia projects 2025 net sales between $158 million and $163 million and aims for positive adjusted EBITDA by 2026.

In other developments, Telsey Advisory Group recently adjusted its outlook on Zevia, cutting the 12-month price target from $4.00 to $3.00 but maintaining a Market Perform rating. The firm cited Zevia’s increased efforts in product innovation and marketing, alongside challenges such as recovering from account losses and supply chain costs. Zevia’s expansion into over 4,300 Walmart (NYSE:WMT) stores and plans to increase its product assortment at Albertsons (NYSE:ACI) by 2025 highlight growth opportunities. However, the competitive nature of the industry remains a concern for analysts.

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