Now that SodaStream (SODA) has finally regained some interest from the market, the analyst community can't wait to downgrade the stock. The company continues to under promise and over deliver with results beating expectations quarter after quarter. The stock though recently stalled at $65 or only roughly 20x this year's "real" earnings estimates.
The company is a leading manufacturer of home beverage carbonation systems sold at major retailers around the world with a primary target on growing in the Americas where soda usage is significantly higher than in Western Europe.
The stock has historically traded at sub-growth rate multiples for various reasons whether from the company reporting in Euros or the current focus away from adjusted earnings. The question is whether the stock will reach multiples compared to its historical and forecasted growth rates or will it remain at a cheap valuation that appears crazy.
After huge gains since November, maybe it shouldn't be too surprising that analysts downgraded the stock recently. First, Deutsche Bank downgraded the stock on 5/16 to a Hold with a price target of $68. Second, JPMorgan downgraded the stock on 5/22 to Neutral with a price target of $70.
In both scenarios, the stock should be a buy now as it has dropped to $61 providing more than 10% gains for the stock to hit the price targets. Still the question is why the targets are so low considering the expectations for fast growth and huge earnings.
The company provided this updated guidance for 2013 in the Q113 earnings report:
- The company now expects full year 2013 revenue to increase approximately 27% over 2012 revenue of $436.3 million, up from its previous guidance of 25%.
- The company now expects full year 2013 Adjusted EBITDA to increase approximately 36% over 2012 Adjusted EBITDA of $61.1 million, up from its previous guidance of 34%.
- The company now expects full year 2013 net income on an Adjusted basis, which excludes share-based compensation expense, to increase approximately 27% over the adjusted net income of $50.0 million reported in 2012, up from its previous guidance of 25%.
- The company expects full year 2013 net income to increase approximately 20% as compared with its net income of $43.9 million in 2012, up from its previous guidance of 18%.
Even though last year's results suggest the company will dramatically increase earnings beyond the original 25% and updated 27% growth rates, the above analysts don't appear to see it that way. Based on the $50M of adjusted net income last year, only a 30% gain would provide the company with $65M of income. Based on 21M shares outstanding, the company would earn over $3 in 2013 alone. As the table from our previous article (see SodaStream s Crazy Cheap Valuation), the company tends to dramatically under forecast results.
As previously mentioned, the company started 2013 with very similar growth expectations that ended up being nearly doubled last year. The starting 2013 revenue estimate of $545M could easily end up at nearly $600M if this year is a repeat of 2012.
Assuming the current growth rates, it is very possible that SodaStream could earn nearly $4 in 2014. With the stock only trading at 15x those earnings, the recent analyst downgrades don't add up. The long-term growth rate is listed at 25% and the company continues growing in the 30% range suggesting the stock should be much closer to $100 than $50. Assuming a decent market for growth stocks over the summer, the stock could realize that value sooner than later.
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