Food and beverage company PepsiCo, Inc. (NASDAQ: PEP) has inked a long-term distribution agreement with energy drinks maker Celsius Holdings, Inc. (NASDAQ: CELH). Under the agreement, PepsiCo will invest $550 million in Celsius.
PepsiCo will take over the U.S. distribution of Celsius’ products and become the preferred global distribution partner of the Florida-based company, effective August 1.
Additionally, PepsiCo will acquire nearly 7.33 million convertible preferred shares of Celsius for $75 per share, taking the total investment to $550 million. On an as-converted basis, PepsiCo’s purchase will be equal to around an 8.5% stake in Celsius.
Further, as part of the deal, one of PepsiCo’s executives will join Celsius’ Board.
The CEO of PepsiCo Beverages North America, Kirk Tanner, said, “The Celsius brand’s growing momentum coupled with the strength of PepsiCo’s portfolio and go-to-market capabilities create a combination we believe will be very compelling and valuable to retailers and consumers.”
The President, Chairman, and CEO of Celsius, John Fieldly, said, “We believe the opportunity to partner with a global best-in-class distributor provides Celsius with significant near-term additional shelf space in both existing retailers as well as new expansion within the independent retailers that represent a significant portion of the U.S. convenience and gas channel where approximately 70% of energy drinks are sold.”
Analysts Are Optimistic about Celsius
Last month, Mark Astrachan of Stifel Nicolaus maintained a Buy rating on the stock and raised the price target to $93 from $77 (6% downside potential).
The analyst expects the company’s sales and stock price to rise, driven by “increasing brand awareness and meaningful distribution/shelf space expansion.”
On TipRanks, Celsius has a Strong Buy consensus rating based on seven Buys and one Hold. However, CELH’s average price target of $85.25 implies 13.8% downside potential.
Bloggers Are Bullish on CELH
TipRanks data shows that financial bloggers are 93% Bullish on CELH, compared to the sector average of 66%.
Investors Welcome the News
Following the announcement on Monday, CELH stock gained over 11% to close at $98.87. The news comes ahead of the company’s second-quarter earnings, which are expected to be released on August 11. Analysts expect the company to post earnings of eight cents per share in the quarter, higher than the year-ago figure of five cents a share.
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