On Friday, Piper Sandler adjusted its stance on The Vita Coco Co. Inc (NASDAQ:COCO), downgrading the stock from Overweight to Neutral and slightly reducing the price target to $28 from the previous $29. The move comes amid concerns over increasing ocean freight rates, which have surged approximately 45% from their early 2024 peak levels.
The Vita Coco brand is recognized for its growth potential and strong product offerings, with an expectation of continuing to capture a larger share of the total refreshment beverage market. Despite these positive attributes, the company's current strategy of having fewer contracted ocean freight rates compared to historical levels is a point of concern, especially as it has been paying below spot rates recently.
Piper Sandler's revised outlook also includes a cut in the estimated EBITDA for the years 2024 and 2025. The firm now forecasts the 2024 EBITDA to be around $72 million, down from the previous estimate of approximately $79 million. Similarly, the 2025 EBITDA projection has been reduced from roughly $89 million to about $86 million.
The revised price target of $28 is based on an approximate 17x multiple of the company's expected 2025 enterprise value to EBITDA. Piper Sandler's assessment concludes that Vita Coco's stock is currently trading at a fair value, particularly when factoring in the anticipated rise in sea freight costs. This cost outlook is a key driver behind the decision to lower the rating to Neutral.
In other recent news, Vita Coco Company has reported a 2% year-over-year increase in net sales for the first quarter of 2024, driven by a significant 31% surge in Q1. The company's net income doubled to $14 million from the previous year, supported by a robust cash position of $123 million and no debt.
These recent developments have led Vita Coco to raise its full-year guidance, forecasting net sales between $500 and $510 million and adjusted EBITDA of $76 million to $82 million. The company also revealed plans for potential market share gains in Europe, and maintaining a healthy cash balance for potential mergers and acquisitions and share buybacks.
However, the company also noted volume softness in the Asian market and uncertainty surrounding future transportation costs. Despite these challenges, Vita Coco demonstrated strong growth in its private label coconut water and received positive initial results from new product launches and innovations.
This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.