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Shares of Celsius Holdings (CELH -1.91%), the struggling energy drink manufacturer, have experienced an upward trend this week despite the absence of any specific announcements from the company itself.
The boost in Celsius’s stock appears to be linked to PepsiCo (PEP -0.71%), which recently announced its acquisition of Poppi, a producer of prebiotic sodas, for a substantial $1.95 billion. This transaction includes $300 million in tax advantages. The acquisition news has invigorated interest in beverage sector stocks, and investors interpreted it as a sign that major beverage companies are exploring expansion opportunities through acquisitions.
As of 12:48 p.m. ET on Thursday, Celsius’s stock had surged by 14.8% during the week.
Acquisition Activity on the Rise
The announcement of the PepsiCo-Poppi deal resulted in Celsius stock soaring over 10% on Monday. However, not all analysts viewed this as a positive indicator for Celsius, which finds itself down by more than 70% from its peak pricing amidst a slowdown in sales and PepsiCo’s overstock issues following its alignment as Celsius’s distribution partner.
Analysts at Jefferies expressed concerns, suggesting that PepsiCo’s move into the health-focused beverage sector might diminish the likelihood of a buyout of Celsius.
Despite these reservations, the market sentiment remained optimistic, pushing the stock even higher on Wednesday, buoyed by commentary from Fed Chairman Jerome Powell, who presented an optimistic view on the economy, suggesting that current data does not indicate weakness. This outlook is generally favorable for consumer discretionary brands like Celsius.
Future Prospects for Celsius
Celsius is coming off its own acquisition, having announced its plans to acquire nutritional supplement brand Alani Nu for $1.8 billion last month.
Currently, the company stands at a pivotal juncture. Its rapid growth has slowed as it encounters intensified competition from established players in the sugar-free segment, such as Red Bull and Monster Beverage, while the overall energy drink market approaches maturity.
At this juncture, Celsius’s stock valuation appears more attractive, trading with a forward price-to-earnings ratio hovering around 30. Should the current deceleration in growth prove to be temporary, there is potential for the stock to experience significant upward movement in the near future.
Jeremy Bowman has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Celsius and Jefferies Financial Group. The Motley Fool has a disclosure policy.
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