DA Davidson keeps BRCC at Buy with stead target amid growth

DA Davidson maintained a positive stance on BRC Inc. (NYSE:BRCC), a company operating in the competitive coffee market, by reiterating a Buy rating and a price target of $5.50. The firm's analysis is based on the latest Nielsen IQ monthly spending data, which provides insight into sales and volume trends within the industry.

According to the data, the overall industry saw flat sales in packaged coffee during September, marking an improvement from a 1.2% decline in August. Ready-to-drink (RTD) coffee sales experienced a 2.5% decrease, which is a slight acceleration from the 3.3% drop witnessed in the previous month. Despite these industry trends, BRC Inc. has demonstrated significant growth, outpacing the market in its respective categories.

BRC Inc. showcased a remarkable 17.2% increase in its packaged coffee business, which is an uptick from the 12.1% growth reported in the prior month. While the company's RTD coffee segment saw a deceleration in growth to 0.7% from 1.2% in September, BRC Inc. continues to capture more market share, indicating resilience and competitive strength in a challenging market environment.

The data underscores BRC Inc.'s ability to grow and take market share even as the broader industry faces headwinds. This performance is particularly notable in the context of the company's packaged coffee segment, which has seen a substantial acceleration in growth compared to the previous month.

DA Davidson's reiterated Buy rating and price target reflect confidence in BRC Inc.'s ongoing market performance and its potential for continued growth within the packaged coffee and RTD coffee segments. The company's ability to outperform industry averages points to a robust business model and effective market strategies.

BRC Inc. experienced significant changes in its board and financial outlook. Thomas E. Davin, a director at BRC Inc., resigned to focus on personal projects, leaving the board without any disagreements on operations, policies, or practices. The company has yet to announce a successor or any changes to its board composition.

BRC Inc. reported a decrease in second-quarter sales growth by 3.2%, deviating from the projected 9.5% increase. However, the company's gross margin exceeded expectations at 41.9%, and its adjusted EBITDA for the quarter was reported at $8.5 million, surpassing analyst estimates.

BRC Inc. also launched a new product, Black Rifle Energy, and reported an 8% growth in their wholesale channel. The company adjusted its 2024 revenue guidance to between $385 million and $415 million, while increasing their gross margin forecast to 39%-42%.

However, BRC Inc.'s downgraded 2024 sales growth guidance raised concerns among analysts. As a result, Citi reduced its price target for BRC Inc. to $4.35, and Roth/MKM downgraded the stock rating to neutral.

InvestingPro Insights

To complement DA Davidson's positive outlook on BRC Inc. (NYSE:BRCC), recent data from InvestingPro provides additional context to the company's financial position and market performance. Despite the strong sales growth highlighted in the Nielsen IQ data, InvestingPro metrics reveal that BRCC's revenue growth has slowed to 18.3% over the last twelve months, with a quarterly revenue decline of 3.19% in Q2 2024. This suggests that while the company is outperforming in certain segments, overall growth may be moderating.

An InvestingPro Tip indicates that BRCC's stock generally trades with high price volatility, which aligns with the recent market performance data showing a significant 39.45% price decline over the past three months. This volatility could present both risks and opportunities for investors considering DA Davidson's bullish stance.

Another relevant InvestingPro Tip notes that analysts predict the company will be profitable this year, which could support the positive outlook if realized. This projection is particularly important given that BRCC was not profitable over the last twelve months, with a negative P/E ratio of -32.44.

For investors seeking a more comprehensive analysis, InvestingPro offers 5 additional tips that could provide further insights into BRCC's financial health and market position.

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