Investing.com -- Celsius Holdings (NASDAQ: NASDAQ:CELH) shares dropped by 2.6% on Tuesday after Morgan Stanley slashed its estimates for the company, citing issues related to promotional accounting and ongoing softness in the energy drink category.
In its latest note, Morgan Stanley pointed to the previously disclosed PepsiCo (NASDAQ:PEP) inventory reduction, which has prompted further downward adjustments to Celsius' third-quarter and fourth-quarter sales forecasts.
Morgan Stanley cut its third-quarter sales estimate for Celsius by 8%, bringing it down to $278 million, significantly below the $322 million consensus estimate.
They said the reduction is driven by "promotional accounting related to the previously disclosed PEP inventory reduction," which could result in an additional $23-$27 million of contra-revenue, the note said.
Furthermore, Morgan Stanley lowered its gross margin estimate by 250 basis points to 46.4%, compared to the consensus of 48.8%.
While these short-term issues are seen as transitory, Morgan Stanley expressed concern about broader trends impacting Celsius.
"We remain Equal-Weight on CELH as we don't see a catalyst until its trends in scanner data inflect positively," the analysts noted, citing stagnant market share and anemic growth in the energy drink category as ongoing challenges.
Looking ahead to the fourth quarter, Morgan Stanley further reduced its sales estimate by 2.5%, citing continued market share softness and category competition.
The firm pointed out that Alani Nu's Witch's Brew has gained significant traction, and with limited innovation expected from Celsius in the near term, competition is likely to remain fierce.
Additionally, they state that fewer new consumers are trying Celsius, with the percentage of new shoppers dropping from 57% in 2023 to 40% over the last 52 weeks. Morgan Stanley suggested this could reflect both macroeconomic factors and the maturing of the Celsius brand.
Morgan Stanley maintained a $50 price target on the stock.