Celsius shares under pressure with forecasted sales and margin impact

On Thursday, Jefferies adjusted the price target for shares of Celsius Holdings (NASDAQ:CELH), bringing it down to $53.00 from the previous $68.00, while keeping a Buy rating on the stock. The adjustment follows news of Pepsi's decision to further reduce its inventory by $100-120 million.

This reduction is significant for Celsius, as it represents a substantial portion of the company's roughly $400 million base. As a result, Celsius is poised to experience its first sales decline since the second quarter of 2018, with an anticipated drop of 22%.

The impact of Pepsi's inventory reduction extends beyond sales figures. Celsius is expected to face a dramatic 80% plunge in operating income as the company will have insufficient time to adjust its operating expenses, which are projected to remain constant despite the decrease in revenue.

The firm's long-term outlook on Celsius remains positive. However, current challenges including a slowdown in the category and a lack of visibility in the supply chain have prompted Jefferies to revise their valuation approach. Consequently, the target multiple has been reduced to 25 times the projected 2026 EBITDA, leading to the lowered price target of $53.

The update from Jefferies comes at a time when Celsius is grappling with immediate financial pressures. The company's forthcoming sales decline marks a significant shift from its consistent growth pattern over the past several years. Despite these short-term hurdles, the maintained Buy rating indicates a belief in the company's potential for recovery and growth in the long term.

In other recent news, Celsius Holdings has seen multiple adjustments to its stock price target following anticipated challenges in the third quarter of 2024. Roth/MKM lowered its price target from $65 to $45 while maintaining a Buy rating, citing inventory reductions by PepsiCo (NASDAQ:PEP) as a significant factor impacting the company's revenue and margins. Despite this, the firm remains confident in Celsius's long-term growth potential. BofA Securities also decreased its price target to $26, maintaining an Underperform rating.

Morgan Stanley held its Equalweight rating and $50 price target due to concerns about decelerated sales growth. TD Cowen reduced its price target from $68 to $50, while retaining a Buy rating, following a revised sales growth projection for Celsius in 2024 to 19%. These adjustments are in response to recent developments and financial expectations provided by Celsius Holdings.

In the face of these challenges, Celsius reported a 23% increase in total revenue, setting a record at $402 million, and a 30% rise in international revenue to $19.6 million. Despite industry challenges, Celsius maintained its category growth leadership and expanded its shelf presence.

In other company news, Zevia PBC announced the appointment of Alexandre Ruberti to its Board of Directors. Ruberti's extensive experience in the beverage industry is expected to contribute significantly to Zevia's strategic growth and profitability.

InvestingPro Insights

As Celsius Holdings (NASDAQ:CELH) navigates through the current financial challenges highlighted by Jefferies, it's worth noting some key metrics and insights from InvestingPro that could provide a broader perspective on the company's situation. With a market capitalization of $7.55 billion and a P/E ratio of 31.23, Celsius is trading at a valuation that reflects its growth potential, despite the recent price corrections. The company's revenue growth over the last twelve months has been robust at 56.5%, signaling strong market demand for its products.

InvestingPro Tips suggest that Celsius is in a relatively strong financial position, holding more cash than debt on its balance sheet, which could be a critical factor in weathering the current sales decline. Additionally, the stock's RSI indicates it is in oversold territory, suggesting the recent sell-off may have been overdone, and potentially presenting a buying opportunity for investors who are bullish on the company's long-term prospects.

For those interested in further insights and analysis, InvestingPro provides additional tips on Celsius Holdings, which can be found at https://www.investing.com/pro/CELH. These tips include a more in-depth look at the company's financial health, stock performance, and analyst predictions, which could be invaluable for investors making informed decisions in this volatile period.

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