BellRing Brands Rebounds But Deals With Changing Consumer Tastes
IPOs, Tech
Seeking Alpha Analyst Since 2013
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Summary
- BellRing Brands went public in October, 2019, beginning the separation process from parent firm Post Holdings.
- The firm sells a variety of nutrition products for active consumers.
- BRBR has grown despite the Covid-19 pandemic, but must deal with a changing consumer landscape and the impact on its products.
- The stock appears highly priced given the uncertain outlook for post-Covid-19 recovery across its brands, so I'm Neutral on it around the current level of $24.00.
Quick Take
BellRing Brands (BRBR) went public in October 2019, raising $480 million in an IPO that began the separation process from parent firm Post Holdings (POST).
The firm sells nutrition products aimed at active consumers in the U.S. and internationally.
BRBR is executing through the Covid-19 pandemic but valuation appears high given future uncertainties as to changing consumer demand.
I’m Neutral on the stock at its current level of around $24.00.
Company
St. Louis, Missouri-based BellRing was formed in 2019 and operates Post Holdings’ Active Nutrition businesses, which as of the end of June 2015, was comprised of ‘Premier Nutrition’, ‘Dymatize Enterprises’ and the ‘PowerBar’ brand as well as Active Nutrition International, an international manufacturer and retailer of company products for certain international markets.
Management is headed by President and CEO Darcy Horn Davenport, who has been with the firm since its inception was previously President of Post’s Active Nutrition business.
BellRings’ brands include Premier Protein, PowerBar, Joint Juice, Supreme Protein, and Dymatize.
Below is a brief overview video of the company’s marketing campaigns:
Source: Premier Protein
BellRings markets its products through a network of channels including club, food, drug and mass [FDM], eCommerce, convenience stores as well as specialty channels.
The firm has a dedicated internal digital marketing team and relies on its website, email marketing, social media, such as Facebook, Instagram, Twitter, and Pinterest, as well as influencers and various retailer programs, among others, to drive brand awareness.
Recent Performance
Topline revenue by quarter has generally grown consistently with the exception of the quarter ended June 30, 2020, as the chart shows here:
Gross profit by quarter has followed the same trajectory, although with a flatter result:
Operating income by quarter dropped in the first two quarters of 2020 but rebounded in fiscal Q4 2020:
Earnings per share (Diluted) results have fluctuated but also rebounded sharply in fiscal Q4 2020:
Source for chart data: Seeking Alpha
In the past 12 months, BRBR’s stock price has risen 15.2 percent vs. the U.S. Personal Product index’ rise of 17.7 percent and the overall U.S. market’s growth of 23.6 percent, as the chart below indicates:
Source: Simply Wall Street
Valuation Metrics
Below is a table of relevant capitalization and valuation figures for the company:
Measure |
Amount |
Market Capitalization |
$3,120,000,000 |
Enterprise Value |
$3,580,000,000 |
Price / Sales |
0.91 |
Enterprise Value / Sales |
3.62 |
Enterprise Value / EBITDA |
18.73 |
Free Cash Flow [TTM] |
$61,400,000 |
Revenue Growth Rate |
15.67% |
Earnings Per Share |
$0.59 |
Source: Company Financials
Below is an estimated DCF (Discounted Cash Flow) analysis of the firm’s projected growth and earnings:
Assuming the above generous DCF parameters, the firm’s shares would be valued at approximately $12.63 versus the current price of $24.19, indicating they are potentially currently overvalued, with the given earnings, growth and discount rate assumptions of the DCF.
Commentary
In its last earnings call, covering fiscal Q4 2020’s results, management highlighted its response to the challenges associated with the Covid-19 pandemic.
BRBR’s main segments of liquids and powders have ‘rebounded to their pre-COVID growth rates.’
But within segments, the pandemic has impacted them differently. For example, weight management has suffered as consumers have moved to comfort foods.
Additionally, its sports nutrition brands have remained flat as ‘consumers figure out new ways to exercise outside the gym.’
As to its financial results, management said its underlying growth tracked consumption growth of 20% as it saw increased distribution and promotional activity.
In addition, fiscal Q4’s net results benefited from trade inventory changes.
Notably, adjusted EBITDA margin declined 320 basis points to 20% for full year fiscal 2020.
Looking ahead to 2021, management said it plans to continue to spend on TV and digital for marketing, using fiscal 2020’s results as a guide.
Additionally, management plans to continue to innovate around functional products,as the Covid-19 pandemic has uncovered a trend toward ‘proactive health.’
This may include more M&A activity if management sees opportunities to add to its Premier Protein brand.
As to valuation, the above DCF is rather bearish on valuation due to dampened earnings performance earlier in 2020.
However, even with improved earnings as we climb out of the Covid-19 pandemic’s negative effects, BRBR has a long way to go to justify its current valuation.
Accordingly, I’m Neutral on the stock at its current level of around $24.00.
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Analyst's Disclosure: I/we 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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