Morgan Stanley: Acquisition may not save Celsius Holding stock

A combination of internal and external factors has led to an almost whiplash-inducing downturn for Celsius Holdings (CELH) stock.

Over the past year, the stock plunged from $95 to $25, shedding nearly 70% of its value. But an announcement last week reignited hopes that the energy drink company isn’t finished yet and that a full rebound could be on the horizon.

As with many sudden swings in stock price, Celsius’ latest wild ride began with the release of its quarterly earnings numbers.

Reading beyond the bottom line

Looking at just the company’s fourth-quarter report, there was no apparent indication that its stock would soon spike by 28%.

• Revenue declined due in part to distribution issues with partner PepsiCo.
• Over all of 2024, the company’s revenue growth remained essentially flat.
• Slowing growth is expected to usher in more sluggish quarters this year.

Despite an arguably disappointing financial report, Celsius had an ace up its corporate sleeve and played it to the delight of investors.

The company announced a bid to acquire rival company Alani Nu for $1.8 billion, which would dramatically increase its market share in the U.S. and allow for expansion into new markets around the world.

That excitement was not enough to negate the impact of this week’s consumer confidence report, though, with shares trading nearly 13% lower on Tuesday in response to the lower-than-expected index.

But while consumer sentiment has an impact on industries far and wide, there are a few industry-specific issues that are influencing analysts’ outlook on Celsius.

An increasingly crowded sector

While it is true that the energy drink market is growing and is projected to continue to do so at an annual rate of about 10%, there is also more competition for those sales than ever before.

By acquiring one of its fastest growing rivals, Celsius clearly hopes to put itself in the most advantageous market position possible.

Some analysts believe the strategic gamble could pay off, particularly since Alani Nu has shown significant growth potential, specifically among females. With just under $600 million in sales last year, the company has posted an impressive 50% compounded annual growth rate since 2022.

The acquisition will give Celsius a roughly 16% share in the energy drink market, plus Alani Nu’s line of products like supplements, protein bars, and shakes will expand the company beyond the beverage sector.

Even amid the initial buzz surrounding the acquisition, however, some analysts were urging caution.

Eric Serotta of Morgan Stanley cited the possibility that the move came “from a more defensive posture” on the part of Celsius, while both he and Truist analyst Bill Chappell warned of the two companies’ overlapping customer base.

“We believe the brands target the same audience so faster growth for Alani Nu could result in slower growth for CELH in the next few quarters,” Chappell wrote.Like others in the segment, the company must also consider the impact of tariffs on imported aluminum.

But with the global beverage industry expected to reach $2.29 trillion by the end of the decade, there might just be an opportunity for continued growth — if Celsius plays its cards right.