Evie Liu

Celsius Holdings shares soared in the first half of 2024 on the back of exponential growth. Thanks to the energy drink maker's successful social media strategy, and brand image of healthy products, Celsius has quickly taken market share from major rivals like Red Bull and Monster Beverage.

But the stock has slumped since May. PepsiCo, Celsius' major distributor in the U.S., has reduced orders over the past few quarters as the company cut the amount of inventory it holds. This has hurt Celsius' financial results.

Barron's wrote in September that the jitters look overblown and the stock is set to bounce back to a higher valuation. That hasn't happened. Since then, Celsius shares have tumbled another 20% as of Dec. 30. They are now 73% below the recent high in May.

Disappointing results for the latest quarter ended in September -- analysts already had low expectations -- further dragged the stock down. Revenue plunged 31% from a year ago to $266 million, while earnings dropped from 30 cents per share in the year-ago period to zero.

Investors are concerned that inflation-induced weakness in consumer spending, which has affected many food and beverage companies, could bring headwinds to energy drinks as well.

Barron's remains bullish on the stock and maintains the belief that the current selloff is overdone.

In the September quarter, Celsius noted that Pepsi's inventory pullback didn't hurt retail sales, which increased 7.1% year-over-year in the quarter, outpacing the 2% growth across the energy drink category in the same period. "Once again, Celsius was a significant driver of the overall energy category," CEO John Fieldly said on an earnings call.

Celsius, which positions itself as a healthier alternative to its rivals, is getting its products on more grocery shelves, selling more online, and expanding overseas. As Pepsi's supply-chain adjustment settles down, Celsius will likely see a recovery in revenue.

For the first and second quarter in 2025, analysts polled by FactSet expect sales to increase 6% from the previous year. Earnings are also expected to bounce back to levels similar to the first half of 2024, though slightly lower due to increased investments.

Celsius acquired its longtime co-packer Big Beverages in November. The company expects the new manufacturing and warehouse facility to bring greater supply chain control and greater production flexibility.

All this should support a higher valuation. Nearly 80% of the analysts have a Buy rating for Celsius stock, with a consensus price target of $41. While that is revised lower from their predictions a few months ago, it still indicates a 59% upside from the stock's closing price as of Dec. 30.

Write to Evie Liu at evie.liu@barrons.com

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January 01, 2025 04:00 ET (09:00 GMT)

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