2023-06-06 10:51:18 ET
Summary
- National Beverage Corp, known for its LaCroix brand, is a leading player in the sparkling water category, with a focus on non-sugary drinks.
- They are riding the wave of the sugar-free trend coupled with the specific popularity of the sparkling water category.
- The stock is currently close to fair value, with a "hold" rating due to the valuation, and a steep discount would be needed for me to get involved.
National Beverage Corp (FIZZ) is an American beverage company best known for its LaCroix brand. Other notable brands under this umbrella are Everfresh, Clear Fruit, and Faygo. It is currently the fourth largest brand in the sparkling water category. It has been a public company since 1991 and their primary markets are the US and Canada.
Below is the long term share performance:
Next are the earnings and return metrics compared to peers:
Company | Rev 10-Year CAGR | Median 10-Year ROE | Median 10-Year ROIC | EPS 10-Year CAGR | FCF/Share 10-Year CAGR |
FIZZ | 6.1% | 45.2% | 39.4% | 13.5% | 18.2% |
-1.1% | 30.2% | 11% | 1.1% | 1.4% | |
0.4% | 17.9% | 17.6% | 0.6% | -4.4% | |
2.8% | 49.9% | 13.4% | 5.1% | -1.5% | |
8.9% | 18.1% | 9.1% | -10.2% | -5.2% | |
23.7% | n/a | n/a | n/a | n/a |
The current version of FIZZ puts a heavy emphasis on sugar-free beverages as an alternative to traditional sugary sodas. They operate 12 production facilities in ten different states, and employ around 1,500 people.
Capital Allocation
A special dividend has been paid on four separate occasions from 2017-2021. They've made no significant acquisitions over the past decade, most of their brands were acquired previously. Share count has basically remained flat over the past decade, and I see no reason why repurchases would become a priority right now. Below we look at cash flows and how capital was allocated:
Year | 2013 | 2014 | 2015 | 2016 | 2017 | 2018 | 2019 | 2020 | 2021 | 2022 |
EBIT | 71 | 64 | 74 | 93 | 162 | 204 | 180 | 166 | 228 | 208 |
FCF | 31 | 40 | 46 | 67 | 100 | 123 | 101 | 154 | 168 | 104 |
Dividends | 188 | 1 | 70 | 70 | 135 | 280 | 280 | |||
Repurchases | 6 | 6 | ||||||||
Debt Repayment | 20 |
Risk
FIZZ competes with the legacy players, and even if they take market share from them over time, there is still essentially a cap on how fast this will take place, due to the competitive nature of this space. The big players spend more on marketing and that leaves the two biggest risks being an overestimation of the fundamental growth rate, and simply paying too high of a price.
I like the fact that their primary focus is on non-sugary drinks, but at the same time, all of the majors are diversifying in that direction as well. This does put a limit on growth even in the best scenario, but the market for sparkling water is estimated to grow at almost 13% till 2030. I don't see any chance of the big beverage companies gaining back significant market share from FIZZ. The La Croix brand has enough mind share to keep customers coming back for a long time.
Long term debt is at a mere $29 million and the cash balance is $118 million. So the balance sheet is very strong, they also don't dilute in order to raise capital.
Valuation
First we will look at the multiples comp, followed by historical multiples:
Company | EV/Sales | EV/EBITDA | EV/FCF | P/B | Div Yield |
FIZZ | 3.9 | 21 | 35.6 | 13.7 | n/a |
KO | 6.5 | 21.4 | 31.1 | 9.7 | 3% |
NSRGY | 3.1 | 14.8 | 44.3 | 6.9 | 2.5% |
PEP | 3.2 | 18.9 | 51 | 14.7 | 2.7% |
KDP | 3.8 | 15.8 | 26.4 | 1.8 | 2.5% |
ZVIA | 1 | -5.4 | -61 | 2.8 | n/a |
I view multiples as a pricing game, not as a valuation in the truest sense of the term. The pricing in this context is most relevant when comparing to peers. With FIZZ, it falls mostly in line with its competitors, and historically it's trading at the higher end. I would argue that it deserves a higher multiple now since it has been growing at a faster rate over the past five years than in previous decades.
Next is the DCF model:
money chinp
I'm giving reasonable credit for growth, with the sparkling water category being the main driver. At today's share price, I see the company as almost fairly valued. The fundamental growth won't be enough to get adequate returns at this level. I will be giving this stock a "hold" rating, due to the valuation.
As a long term investor, I don't feel there is enough of a runway to be considered a stock truly capable of being a compounder. It might be the closest thing to a pure play on the sparkling water trend, but there is zero chance of FIZZ becoming anywhere near the size or diversification of a Coke or Nestle.
Conclusion
Consumers have been shifting away from the traditional sugary beverages that have been staples for so long, and moving towards sugar-free or reduced sugar alternatives. FIZZ is riding this wave as best as it can and is enjoying high returns on capital.
Right now, the returns on equity and invested capital look marvelous, but these returns will revert to the mean in the long run. La Croix is still a leading brand in its category and won't be fading away, but these returns on capital will decline as the company gets bigger, and eventually shareholder yield will have to become a main part of the total return for investors.
The stock is close to fair value, and I would need to see a pretty steep discount from here to want to get involved.
For further details see:
National Beverage Corp.: On Trend But Shares Pricey At This Point