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Today’s sharp gains in Celsius Holdings Inc. (NASDAQ:CELH) appear related to investor speculation that beverage giant PepsiCo (NASDAQ:PEP) could turn its sights on the company after terminating its distribution agreement with Bang.
Commenting on the situation, Stifel analyst Mark Astrachan notes that Pepsi is meaningfully under-indexed in the energy drink sector to its largest peer Coca-Cola (NYSE:KO) and therefore could seek to acquire Celsius.
Astrachan said while he has no knowledge of discussions between Pepsi and Celsius, Celsius is the fourth-largest U.S. energy drink brand, with a 4.1% share. It also has seen 218% average growth on a TTM basis reflecting strong distribution gains via Anheuser-Busch and meaningful increases in brand awareness.
“Duplicating current Bang distribution, we estimate PepsiCo could double Celsius’ current distribution, meaningfully accelerating market share and sales growth for the brand,” Astrachan commented. “We also think PepsiCo could expedite international expansion for Celsius. We think significant cost synergies are also likely given PepsiCo’s vertical integration in marketing, bottling/manufacturing, and distribution.”
PepsiCo could also try to make a run at the largest energy drink player, Monster Beverage (NASDAQ:MNST), the analyst speculates.
“While we have no knowledge of any M&A negotiations or discussions, and unlikely, we think PepsiCo could seek to acquire Monster,” he commented. “Despite the breakup fee to be paid to Coke, we estimate a deal could still be accretive given significant cost synergies. An acquisition of Monster would also increase scale in a number of international markets where PepsiCo’s beverage share under-indexes.”
