BellRing Brands Inc (NYSE: BRBR) is a nutrition products company known for its ready-to-drink protein shakes and was born out of the separation of Post Holdings Inc (NYSE: POST). On Monday, multiple analysts initiated coverage of BellRing's stock with a mostly positive bias.
Credit Suisse analyst Kaumil Gajrawala initiated coverage of BellRing with an Outperform rating and $21 price target.
BMO Capital Markets Kenneth Zaslow initiated at Outperform with a $22 price target.
Stifel analyst Christopher Growe initiated at Buy with a $21 price target.
Wells Fargo analyst John Baumgartner initiated at Outperform with a $23 price target.
Credit Suisse: Pure Play Health And Wellness
BellRing is a pure play stock on the health and wellness category as its Premier Protein read-to-drink (RTD) beverages account for 77% of sales so far in 2019 and has grown at an 18% compounded annual growth rate since 2017, Gajrawala wrote in a note.
The overall protein shake category is growing at around 6% to 8% and accounts for only 15% of the total $16 billion Convenient Nutrition market (bars, powders, shakes), the analyst said. As such, the company has potential for expansion as the company ramps up its distribution which currently lags its rivals at 275,000 distribution points versus peers at more than 400,000.
Related Link: BellRing Brands IPO: What You Need To Know
BMO: Five Catalysts To Support Growth
BellRing's stock is trading at a "reasonable" price and was likely impacted by its own errors in supply management in 2019, Zaslow wrote in a note. However, the company can operate with a more consistent track record moving forward and take advantage of a few catalysts to support double-digit growth.
The catalysts include expanding from a low household penetration of just 5% in a market that adds 2 million households every year, a better focus on higher population areas like California which is under-penetrated by competitors, and e-commerce sales could generate incremental growth of at least $10 million in annual sales.
Stifel: Post Holdings Ownership
Post Holdings continues to hold a 71% stake in BellRing and represents the "fast growth arm" of its portfolio, Growe wrote in a note. BellRing's recent successful IPO gives Post two key advantages, including equity that can be used to buy faster growth businesses in the future.
Second, the spin of BellRing gives investors a clearer picture of the core Post business, which "we contend seemed to get lost or dwarfed by other businesses in the portfolio," the analyst wrote.
Wells Fargo: Favorable Risk To Reward Profile
Shares of BellRing are up around 30% since its Oct. 17 initial public offering but continues to trade at a 10% discount to pure-play nutrition competitor Simply Good Foods Co (NASDAQ: SMPL) at 17 times 2020 EBITDA, Baumgartner wrote in the note. As such, the current valuation offers a favorable risk to reward profile for investors with a long-term timeframe.
Shares of BellRing were trading higher by 4.5% to $19.02 at time of publication.