Why National Beverage Might Have Just Become The Most Exciting 'Special Situation' Story In The Stock Market

| About: National Beverage (FIZZ)

I am interrupting the "in progress" update on my last National Beverage (NASDAQ:FIZZ) article to report on a very exciting development in the National Beverage story - one that opens up an entirely new door for upside potential that is not currently factored into National Beverage's stock price. This upside potential is invisible to the vast majority of investors, which has created significant opportunity for those of us who are paying attention.

National Beverage just reported solid operating results for the second quarter. Contained within the press release is text written by CEO Nick Caporella that not only validates the thesis of my last National Beverage article (Is National Beverage in play? An analysis of National Beverage's 2013 proxy statement), but raises the potential for value creation up to an entirely new level.

Here is the key passage from the press release:

To conserve space in this release, I will write a shareholder letter over the next ten days going into detail relative to the Power + Brand segment that continues to provide results as witnessed within this release. Further contained in this letter, we will 'outlook' assets that heretofore were thought only revenue and profit generators! Today, some investors are weighing their potential value when placed in a larger, more mature, distribution system," Caporella stated.

Reread the last two sentences. To me, it is 100% clear that Caporella has strongly hinted at how he plans to maximize value for shareholders and create the, "happy ending for everyone" that was mentioned in the proxy statement.

The implied question is: What would LaCroix (And the other Power + brands) be worth to, say, Coca-Cola (NYSE:KO), which could immediately plug them into its immense global distribution system?

Allow me to use a historical example to establish context. On May 25, 2007, Coca Cola announced that it had purchased Glaceau (the maker of Vitamin water) for 4.2 Billion dollars. It did not do this because Glaceau's historical financial results indicated a "value" opportunity was present. The key to understanding this acquisition is that the Vitamin Water brand was worth immensely more as part of Coca-Cola's massive marketing and distribution system vs. its value as part of a small company - So much so that historical valuation metrics were not particularly relevant. A useful analogy is a Christmas tree. The lights and wiring that cover the tree are the equivalent of a global distribution network. "Plugging in" the lights illuminates the tree in the same way that unique new products "light up" an established distribution network and enhance its value.

Consider the following: LaCroix is a domestic leader in the growing, strategically critical "healthier beverage" market segment. Visit almost any multi-national beverage maker's web site and you will find that they are almost tripping over themselves in an effort to move towards healthier product lines that can replace volume losses in conventional cola drinks. Given health issues such as the obesity crisis, this movement is not just strategically critical, but politically necessary. In light of this, the open question is: Where will the full value of National Beverage's Power+ brands ultimately be realized? I believe that this value will prove to be significantly higher than my current $22 per share price target - My current rough estimate is for at least 50% potential upside from the current share price. I will finalize my new target after I have had a chance to analyze the pending special letter to shareholders.

To summarize the situation:

  • The message contained in the proxy statement has been confirmed - Caporella is indeed looking to engineer a "happy ending for everyone" in the sense that we interpreted it in the last article
  • Caporella is not just looking to create a conventional "happy ending" but is looking to maximize for shareholders- and he has given a hint as to his ultimate strategy for doing this
  • A special letter to shareholders will be published within the next 10 days outlining the strength of the "Power +" line of individual brands, which will provide us with clues as to their ultimate "hidden asset" value

I believe the above elements have made the National Beverage story one of the most (if not the most) compelling in the entire stock market. I will issue a full report and analysis of the situation (including developments at the brand level) after the special investor letter has been released. Note though, that investors who wait until too many cards are "face up" might end up missing the opportunity.

Disclosure: I am long FIZZ. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

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