Is Primo Brands Undervalued? Analyst Forecasts Premium Shift Will Boost Margins And Valuation

BMO Capital analyst Andrew Strelzik initiated coverage on Primo Brands Corp PRMB with an Outperform Rating and announced a price target of $40.00.

The recent merger between Primo Water and BlueTriton has created PRMB. The combined company, which has a strong portfolio of leading water brands, has rapidly established itself as a major player, said the analyst.

According to the analyst, the merger brings together a national footprint with a diverse set of brands across various channels, with PRMB now holding a 19% market share.

With key brands like Poland Spring, Pure Life, and Mountain Valley, PRMB aims to achieve healthy revenue growth in the coming years, expecting at least mid-single digits, leveraging its extensive national platform and strong market presence, said the analyst.

Notably, PRMB’s growth is projected to surpass the overall food industry, which typically grows at around 1.5%-2.0%, suggested the analyst.

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This growth, according to the analyst, will be fueled by expanding market share, revenue synergies, and strategic investments into higher-margin adjacencies, positioning the company to outpace broader industry trends.

One of PRMB’s major growth drivers, the analyst quipped, is its cost synergy program, which is targeted to deliver $200 million in savings within the next three years.

These savings are anticipated to lead to an expansion of adjusted EBITDA margins to the mid-20% range. It is also anticipated that a shift towards higher-margin premium brands will further improve profitability over time, with its premium products like Mountain Valley and Saratoga paving the way for stronger margins.

In the analyst’s view, PRMB valuation should more closely align with traditional beverage companies. Trading at 11.5x-12.0x its 2025 EBITDA, PRMB is only slightly above the average for route-based services and food distribution companies.

The company’s valuation should migrate higher as its branded portfolio grows, aligning more closely with other branded beverage companies, concluded the analyst.

Price Action: PRMB shares are trading higher by 1.72% at $31.61 at the last check Monday.

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