Macquarie: Coca-Cola A Winner With BodyArmor Investment As Pepsi's Gatorade Cedes Share

Coca-Cola Co KO's minority investment in sports drinks maker BodyArmor is a win-win scenario for both parties, according to Macquarie Research.

The Analyst

Analyst Caroline Levy maintained a Neutral rating on Coca-Cola with a 12-month price target of $50. (See Levy's track record here.)

The Thesis

BodyArmor has ample room to grow over multiple years in North America and abroad, Levi said in a note. A $6 million investment by Kobe Bryant along with NCAA sponsorship, Coca-Cola's energized bottling system implemented since November and BodyArmor's founder Mike Repole's leadership is the recipe for a winning combination, according to the analyst.

Since BodyArmor's transition into the Coca-Cola's bottling system, the brand's dollar share rose from 2 percent two years ago to 7 percent, the analyst said, citing IRI data.

Source: Macquarie

The analyst sees retail sales of BodyArmor rising from $400 million currently to $1 billion by 2021, thanks to healthier ingredients relative to PepsiCo, Inc. PEP's Gatorade and increased marketing and distribution opportunities.

"We have confidence that the bottlers can appropriately support BodyArmor and deliver a pincer strategy of value brand (Powerade) and premium brand (BodyArmor) to gain share vs Gatorade," Levy wrote in the note. The firm sees volume contracting in the near-term but value increasing significantly even as Gatorade continues to slump.

Levy also sees no merit in the rumors of BodyArmor launching an energy drink to compete against Monster Beverage Corp MNST.

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