Pulse Beverage: Looking Attractive As Expansion Continues

| About: The Pulse (PLSB)

Pulse Beverage (OTCQB:PLSB) has seen a big increase in shareholder interest over the past two months as the company continues to work towards making an expansion push for its product despite facing heavy competition from beverage giants like Coca-Cola (NYSE:KO) and Pepsico (NYSE:PEP).

Pulse is a new company to the public markets and was formed just about 2 years ago as a result of a reverse merger with Darlington Mines, an exploration stage company. The company completed a share exchange and then subsequently changed its name to Pulse Beverage.

Pulse, the beverage company, was formed in 2010 by senior beverage industry veterans for the purpose of exploiting niche markets in the beverage industry. The Pulse brand of beverages contains functional ingredients that have been shown to promote health. Pulse beverages are unique in that they were scientifically developed and contain effective ingredients that are widely considered to be critical to adult health using liposome nanotechnology that introduces the ingredients into the beverage in a format that allows the body to absorb the nutrients.

The company has an interesting history and the Pulse brand of beverages was actually initially developed by Baxter (NYSE:BAX), the $38 billion healthcare giant, and actually was the first brand of dietary supplements of the type to be developed and marketed by an established, global healthcare company. Keep in mind, before the new management took over the brand, Baxter invested in excess of $10 million developing and initially marketing the brand.

The market opportunity for Pulse's products looks promising. Non-alcoholic beverages are among the most widely distributed food products in the world and are being sold through more than 400,000 retailers in the United States. The United States has more than 2,600 beverage companies and 500 bottlers of beverage products. Collectively they account for more than $100 billion in annual sales. Carbonated beverage sales are slipping, while non-carbonated beverage sales are growing. Experts predict that beverage companies that only offer carbonated beverages will have to work hard to offset flagging demand. Industry watchers believe that growth will be largely confined to non-carbonated beverages and will chiefly affect functional drinks. Functional, sports and energy drinks are expected to be the principal beneficiaries of this trend.

One major trend worth watching that could significantly play into Pulse's cards is the societal shift to healthier beverages. Increasingly, consumers are coming to view carbonated drinks, particularly those laden with sugar, caffeine and preservatives, with disfavor. Indeed, much to the dismay of the beverage industry giants, carbonated drinks have become an object of considerable concern to the press and medical communities. Carbonated drinks are seen as a primary cause of the nation's growing obesity and a contributing cause of cancer as recently reported in a number of major U.S. publications.

This trend is already playing out in the public eye. On Friday, it was reported that a San Antonio lawmaker wants to add a penny per ounce tax on sugary drinks like soda. He says the money would then help fund public education and promote a healthier lifestyle. Also on Friday, Yahoo reported that drinking just one 12-ounce can of a diet soda drink, supposedly the healthier alternative, per week can increase your risk of Type 2 diabetes by 33%, French researchers found. And given that most people don't stop at a single weekly serving, the real risk for diabetes could actually be much higher.

With that background and trends laid out, it's time to take a closer look at the company itself. Pulse is an emerging growth beverage company that manufactures and distributes Cabana 100% Natural Lemonade and PULSE brand of functional beverages in three health platforms: PULSE Heart Health Formula, PULSE Women's Health Formula and PULSE Men's Health Formula.

The company's main growth focus has been growing its distribution network and before the company's recent announcements, in the first 10 months of 2012, Pulse built a nationwide distribution system with 83 distributors servicing 43 US states, Canada, Panama, Bermuda and Mexico. Pulse followed that up by adding a number of other distributors over the past 3 months as seen here. In its most recent announcement, Pulse said that it secured The Odom Corporation, a major wholesaler for the Pacific Northwest, for distribution.

The result of the company's efforts in distribution and the product penetration is already showing up in the sales figures. In a third quarter 10-Q, the company said that it estimates that sales of Cabana Lemonade will reach 1 million cases on an annualized basis and 2013 sales are estimated to be over 2 million cases. In a January press release, Pulse said that on a twelve month from delivery-to-store basis, it estimates US Cabana case sales in excess of 2.5 million and international Cabana case sales in excess of 500,000 based on secured and targeted listings to date. Obviously, a significant jump from the 2 million cases estimated in the middle of November.

Recent updates from the company included its progress in its growth strategy. Pulse said that its distribution system reached nationwide "critical mass" during the latter part of 2012. Centralized purchasing for large grocery and convenience store chains has resulted in the implementation of shelf-settings and product placements to Q1 of 2013. This allowed the company to expand distribution for Cabana with over 7,500 retail chain outlets to date and expects to add an additional 8,000 US listings during the remainder of Q1.

There are two analysts that cover the stock and both are bullish. Goldman Small Cap Research initiated Pulse Beverage last week noting that Pulse is founded and led by the team that made Clearly Canadian Beverage a monster success, which was later acquired. The report suggests that this stock is Clearly Canadian II, will run to $4, and ultimately be acquired for between $8-10. Goldman Small Cap Research further said that it thinks that sales for Pulse leap from $2 million in 2012 to $30 million in 2013.

NBT Equities Research is the other firm that covers the stock and said that due to the extremely rapid sales and distribution growth of Pulse's Cabana brand lemonades and their one million annual case sales rate achieved, industry valuation metrics for the Cabana franchise alone indicates a near-term $150 million+ valuation or $3.50+ per share outstanding for PLSB stock. The firm forecasts at least another $50 million in brand value developing for the Pulse franchise as well by the end of 2013.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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