New Age Beverages Corporation (NBEV) announced earlier this month the acquisition of Morinda Holdings for $85 million. Since the takeover, the company’s shares have been trading nearly 18% higher. Why? The change expands the natural juice company’s footprint, adding more products to its line and making it the 40th largest non-alcoholic beverage company in the world. That’s pretty sweet. Or at least that’s the message coming from Northland’s top analyst Mike Grondahl who rates the stock Outperform, while lifting the price target to $6.00 (from $4.00).
According to TipRanks, which measures analysts’ and bloggers’ success rate based on how their calls perform, 5-star analyst Mike Grondahl has a yearly average return of 29% and a 68% success rate. Grondahl has a 41.7% average return when recommending NBEV, and is ranked #65 out of 5,105 analysts.
“We believe the acquisition adds global distribution via a direct-to-consumer model. NBEV believes this approach could be very helpful with its CBD Water and CBD Shot products and possibly others like the Marley brands. We believe of Morinda’s $240M in TTM revenues that about $100M is in Japan, $85M is in China and roughly $15M is in the U.S. We believe the real question is can these 160K individual sales points across the globe sell CBD products in Asia direct-to-consumer. Longer-term this might be a channel for some of NBEV’s Health Sciences offerings,” Grondahl said.
“We believe there is an earnout for $15M if Morinda generates roughly $20M in adj. EBITDA in 2019. As such, with the earnout, NBEV is paying $75M for $20M of adj. EBITDA or about 3.75x adj. EBITDA, which seems pretty cheap,” the analyst continued. “On a pro forma basis, assuming a stable share price through the closing process, NBEV shares are reflecting a ~1.1x EV/TTM revenue multiple. NBEV expects $10M of revenue and cost synergies over the 12-18 months after close, including $2M of immediate operating expense savings,” the analyst added
Grondahl notes there’s a demand for Cannabidiol (CBD) in the U.S. of 125K points of distribution with a focus in states where adult-use it already approved. The analyst is looking forward to the Hemp Farming Act, which is a 2018 Farm Bill that would federally legalize hemp. The bill is supposed to be finalized by the end of the year and would make for a broader, legal distribution of the company’s CBD products. Grondahl also believes it could open a door to partnerships with others in the CBD/cannabis beverage industry.
Overall, Wall Street sees this stock as an attractive one. Since the news, some analysts have increased their price targets for the beverage company. Out of four analysts who are sippin’ the drink (so to speak,) 3 are bullish and 1 sidelined. The consensus price target of $6.67 shows a potential 12% upside. (See NBEV’s price targets and analyst ratings on TipRanks)