Celsius Stock: Why Piper Sandler Forecasts a 50% Surge

Key Points

• Analysts at Piper Sandler have found plenty of reasons to boost Celsius stock from where it trades today. 
• Backed by stronger fundamentals, the company's recent and future results could prove these analysts right. 
• Compared to peers, Celsius could be the only beverage company that could achieve triple-digit EPS growth. 

Because of how inflation in the U.S. economy has been headed lately, it isn’t consumer discretionary stocks that tend to call on the market’s attention, but rather the artificial intelligence-drunk technology names, the likes of NVIDIA Co. NASDAQ: NVDA and others. However, there are a few gems to be picked by those who are brave enough to consider them.

One such gem can be potentially found in energy drink Celsius Holdings Inc. NASDAQ: CELH, which has rallied by over 10% in the past week on news of a respected Wall Street firm boosting the company’s stock price higher from previous ratings. Wall Street analysts don’t often stick their necks out when valuing and rating stocks, as their reputations could take a hit if they are wrong.

This is why the recent boost matters more for investors, as shares of Celsius have traded down to only 64% of their 52-week highs, even with the recent double-digit rally. Do not worry; this means good news for investors looking to buy at a discount. But before blindly purchasing a beaten-down stock on an analyst boost, here’s why Celsius could be worth a second look.

Celsius Stock Leadership Available at a Discount for Investors

Despite its recent decline, Celsius remains a top stock in the beverage industry, especially in the key metric investors prioritize.

Compared to peers like Monster Beverage Co. NASDAQ: MNST and others in the caffeinated drinks space like Starbucks Co. NASDAQ: SBUX, Celsius takes the top spot.

Wall Street expects Celsius stock’s earnings per share (EPS) to grow by as much as 29.6% in the next 12 months, a rate above Monster’s projections for 14.8%. Regarding Starbucks’ 12.5% expectations, Celsius also takes the lead.

Because EPS is still looking to grow above the industry average, and considering today’s discounts relative to the stock’s previous highs, analysts at Piper Sandler saw it fit to slap a $90 price target on Celsius stock, daring it to rally by nearly 50% from where it sits today.

Even though going bullish on a beaten-down stock can be an eventual successful call, there must be another reason behind these analysts' willingness to take the contrarian view; here are a few.

Celsius's Potential to Double Market Share Excites Investors

According to research done by Jefferies Financial Group, Celsius stock could double its current market share by the end of 2025. Celsius currently holds 4.9% of the U.S. energy drink market, but that share could increase to 8% to 9% in the next 12 months.

These predictions are supported by the fact that Celsius landed a deal with PepsiCo Inc. NASDAQ: PEP, creating a path for the brand to start achieving further economies of scale, which is likely to translate into better-than-expected EPS growth.

Digging into the company's latest quarterly earnings results, Jefferies's predictions start to take on water. Revenues grew by an astonishing 36.8%, a rate that discredits how cheap the stock has become in recent months.

But that’s not all; earnings per share doubled to $0.28 from where they were just a year ago. Double and triple-digit EPS growth is nothing new for Celsius, so current analyst projections for future EPS growth beg the question of whether they are on the more conservative end of the spectrum.

More importantly, free cash flow (operating cash flow minus capital expenditures) stood above breakeven in the quarter, closing in at a rate of $130.1 million. Suppose Celsius can remain a positive free cash flow business. In that case, it is a matter of time before investors start reaping the benefits of buying a company in its early stages.

Strong Market Confidence in Future Upside for Celsius Stock

Markets agree with this stance, as they are willing to pay a premium for future earnings over all other peers in the beverage sector. A forward P/E ratio of 43.3x puts Celsius roughly 80% above Monster’s 24.0x valuation today.

However, premiums don’t stop there as Celsius stock trades at a 55.4x price-to-book (P/B) multiple, significantly above the rest of the beverage industry’s average valuation of 28.0x.

Stocks don’t usually trade at such high valuations unless markets have a good reason to believe their future financials to be anything but expanding, and investors now have several reasons to justify these premiums today.