Celsius downgrade reflects slower recovery as shares outrun fundamentals

Investing.com -- Celsius Holdings faces a longer road back to sustained growth after weakening trends in its core brand, while a recent rebound in the shares has raised investor expectations beyond what Deutsche Bank believes the business can currently support.

Deutsche Bank downgraded the energy-drink maker to Hold from Buy, but raised its price target to $35 from $30. The stock stood at $35.34 on Aug. 25, leaving little room for appreciation to the new target.The bank said Celsius' core trends deteriorated further through the second quarter, with revenue and profitability missing expectations and management pushing the timing of a meaningful recovery into fiscal 2027. Deutsche Bank said it now expects evidence of a durable recovery in the core Celsius brand to emerge no earlier than calendar 2027.

The recent share-price rebound has complicated the investment case. Celsius shares have risen about 30% over the past month, according to the bank, with investor optimism fueled in part by expectations that pressure from shareholders, activists and the board could accelerate operational or strategic changes. Deutsche Bank said those possibilities are difficult to value with confidence.

Deutsche Bank expects near-term comparisons to remain difficult. Celsius could benefit from easier comparisons later, but Alani Nu is beginning to face tougher growth comparisons as distribution-related tailwinds fade. That could make it harder for the broader portfolio to deliver a clear acceleration.

For the fourth quarter, Deutsche Bank raised its revenue forecast slightly to $738 million but kept it nearly 4% below consensus. The bank assumes only 1% growth for Celsius in North America and 3% globally, while forecasting a 3% year-over-year decline for Alani Nu as the brand cycles the transition into PepsiCo's direct-store-delivery network.

The bank expects fourth-quarter adjusted EBITDA of $149 million, nearly 10% below consensus, citing input-cost inflation, unfavorable brand mix and spending needed to rebuild the Celsius business. For fiscal 2027, its revenue and adjusted EBITDA estimates remain 5% and 12% below consensus, respectively, leaving downside risk if market expectations remain elevated.

Deutsche Bank said its stance could improve with tangible evidence of stronger consumption, sustained Alani Nu momentum and better execution from recent organizational changes. It continues to see value in Celsius' brands and position in the energy-drink market, but believes those strengths are not enough to justify a Buy rating while the recovery remains uncertain.

You May Also Be Interested In

• GameStop beats second quarter estimates on collectibles
• UBS upgrades Lockheed Martin to Buy, sees 26% upside on missile growth
• Braze stock tumbles 10% on weak third quarter EPS guidance