Our view: We think PRMW will again show its strength in Q3 with top-line +MSD% following another beat/raise last quarter. We think any outperformance here should be met with less stock price resistance now that the merger with BlueTriton Brands has been approved by shareholders and is expected to close this week. Deal aside, we think Primo’s current business momentum will continue to yield strong results in the near-term and beyond. Mgmt. initiatives to improve customer experience will likely facilitate this and be a key discussion point during Q3 earnings, as we see the company making continued progress here.
Key points:
Risk to Reward: Positive. PRMW has significantly outperformed both XLP and the S&P500 YTD, and the clearing of regulatory hurdles as needed to complete the merger with BlueTriton has helped the stock surpass its prior resistance level in recent weeks. We think a successful deal could potentially equate to an incremental $5 of upside to our valuation. What’s more, we see multiple potential post-close value unlocks that could drive shares of the combined company north of $40 (see our recent PRMW deep dive for details). Despite its YTD outperformance, PRMW still trades at just ~11x 2-yr forward EV/EBITDA vs. an average of ~16x for water peers and while staples names with similar revenue/EBITDA growth outlooks trade in the mid-teens. Given what we view as a highly attractive risk/reward profile for a company that is significantly undervalued relative to its opportunity set, PRMW remains one of our top ideas.
Unique Modeling Reminders: Last Quarter (2Q’24) – 1) Water Dispensers revenue declined -21.0%, driven by volume -16.2% and expected lower wholesale prices -4.8% as the tariff elimination works through pricing architecture.
Year Ago (3Q’23) – 1) PRMW announced the planned sale of its International business, a significant portion of which has been completed as of late December ‘23. They provided adjustments to selected historical financials concurrent with the announcement, and results going forward will reflect the transaction. 2) Water Dispensers revenue declined -29.5%, some of which is attributable to purposeful deflation associated with the roll-off of tariffs. Dispenser sell-through of 252k units declined vs. >270k in the year-ago period, though this is primarily due to de-prioritization of e- commerce in favor of brick & mortar.
Investment Thesis: Despite the stock's strong performance this year, we still perceive compelling upside potential for PRMW as a standalone company, with further potential value unlocks resulting from the pending merger with BlueTriton.