2023-05-11 18:32:22 ET
Summary
- Celsius Holdings, Inc. smashed Q1 2023 analyst estimates, beating revenue targets by over $40 million.
- The energy drink company remains in major expansion mode heading into international expansion via PepsiCo in 2024.
- Celsius Holdings, Inc. stock remains cheap at a forward EV/S multiple of 7x, matching the multiple of much slower-growing peer Monster Beverage.
As figured, the distribution deal with PepsiCo, Inc. ( PEP ) was a major game changer for Celsius Holdings, Inc. ( CELH ). The energy drink company has now taken the step to the next level. My investment thesis remains ultra Bullish on the stock as it breaks out from prior resistance on the impressive Q1 results .
Source: Finviz
Record Quarter
After disappointing Q4 2022 growth rates established as related to the distribution network switch, Celsius reported a magnificent March quarter . The energy drink company not only smashed analyst estimates by over $40 million, but also the company beat the prior record quarterly sales of $188 million in Q3'22 by a massive $72 million.
Just as important, Celsius turned in a strong EPS of $0.40 with an adjusted EBITDA of $49 million. Both profit metrics were far in excess of the levels from Q1'22 when the energy drink company was only starting to produce profits on the soaring demand.
The majority of the sales growth came from North America, where Celsius grew revenue by 101% to $249 million. The company doubled U.S. market share to 7.5%, up from 3.7% last Q1. Celsius still doesn't have a 10% market share, while being the #3 energy drink company now providing substantial growth opportunity in a market SPINS shows growing a 12.4% clip in March.
International sales only grew 15% to $11.4 million, providing the vast majority of growth opportunities. The Pepsi distribution deal opens up the international markets, though the initial distribution partnership has focused solely on the U.S. distribution network, while the global scale of Pepsi will quickly open up other markets virtually untapped.
Per CEO John Fieldly on the Q1'23 earnings call , Celsius is lining up a big international expansion push in 2024:
While the U.S. transition has taken a majority of our focus to date, we do expect to announce additional international expansion details in the future. With that said, we look forward probably likely to early 2024 for opportunities to roll out internationally with 2023 being the year of planning around logistics, production, distribution and marketing.
The energy drink company will see growth rates slow over the years, with 100% growth unsustainable as the annual run rate has now reached $1 billion. Still, analysts were forecasting revenues soar to $2 billion by 2025.
Early Innings Still
On the strong earnings, the stock closed at $130 and set a new all-time high above $134. Celsius only has a market cap of $10 billion, while Monster Beverage Corporation ( MNST ) is worth over $62 billion.
Right now, Celsius isn't valued any higher based on having vastly higher growth rates. On a forward EV/S basis, Celsius actually trades at a slight discount to the multiple of Monster Beverage, though the latter only has 1/10 the growth rate.
Celsius is now generating a large profit and will produce strong cash flows going forward. The energy drink company has a cash balance of $634 million entering this period, where the company will start throwing off significant profits.
The stock doesn't really appear cheap here at 7.2x forward EV/S multiples, but the stock has to rally at the same rate as sales growth for Celsius to maintain a similar multiple to Monster. Analysts forecast a 67% sales growth rate this year, followed by sales doubling to reach nearly $2 billion by 2025. In theory, the stock would have nearly 100% upside during this period to at least maintain the EV/S multiple of the slower growing Monster.
Takeaway
The key investor takeaway is that Celsius Holdings, Inc. continues to report blowout results. The stock is still priced like the industry leader with much slower growth. Investors shouldn't exactly expect multiple expansion for Celsius in the year ahead, but rather Celsius should continue hitting higher prices along with revenue growth.
Celsius Holdings, Inc. stock remains a Strong Buy up at $130, but hopefully investors bought the recent dip into the $80s.
For further details see:
Celsius Holdings: Major Breakout