Analyst Shows Concerns With 'Impaired LaCroix Sales Growth' For National Beverage - National Beverage (NASDAQ:FIZZ)

The case for turning incrementally bearish on National Beverage Corp. (NASDAQ:FIZZ) remains unchanged heading into the company's fiscal second-quarter earnings print next week, according to Guggenheim.

The Analyst

Guggenheim Partners' Laurent Grandet maintains a Sell rating on National Beverage with a price target lowered from $91 to $83.

The Thesis

Retail sales of National Beverage's LaCroix brand fell 2.6 percent in the final month (October) of the company's fiscal second quarter, Grandet said in a note. This marks a "dramatic deceleration" compared to a 20 percent or more run-rate over the past few months. The loss of momentum likely continued into November, which begs the question if sales can ever fully recover to its prior growth rates.

Grandet said the competitive landscape in the sparkling water category continues to expand from new and established brands. At the same time, innovation from LaCroix remains "underwhelming" and it's likely the brand is reaching its peak distribution which implies a poorer than previously expected future growth trajectory. The new uncertainty warrants a longer-term reduction in sales estimates from 9 percent compounded annual growth through fiscal 2021 to 7 percent.

National Beverage shares are down around 25 percent since September amid concerning headlines, which Grandet said does create a scenario where a competitor might be "tempted" to explore M&A options. It's "very unlikely" a domestic peer would be interested in buying the company and if National Beverage is interested in M&A deals, it must be willing to sell the LaCroix brand in a standalone transaction.