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SodaStream (SODA) on a Bull Run: Will it Scale Further?


Shares of SodaStream International Ltd. SODA have rallied more than 78% so far this year. However, its industry has lost 9.6% in the same time frame. In fact, shares of the company have rallied almost 10% after it raised its 2017 guidance on Nov 1. Also, the company has outperformed the industry in each of the 4-week, 12-week and 52-week time frames.

Also, earnings estimates have been rising over the past 60 days. This suggests that sentiment on this Israel-based manufacturer of household soda is moving in the right direction and the company is poised to perform well in the quarters ahead.

Notably, over the last 60 days, the Zacks Consensus Estimate for the fourth quarter of 2017 earnings rose 6.8% to 78 cents. This reflects a year-over-year increase of 42.8%. Also, earnings estimates for the current year and the next have inched up 6.9% and 11%, respectively.

This bullish trend is the reason behind the stock boasting a Zacks Rank #1 (Strong Buy) and why we expect the company to outperform in the near term.

Let us delve deeper into the factors that might help the stock maintain the bull run.

Upbeat Guidance

SodaStream’s total revenues for 2017 are expected to witness 13% year-over-year increase to $536 million, better than the prior expectation of $523 million. Meanwhile, fourth-quarter revenues are expected to increase approximately 14% to about $150 million.

The company has maintained its gross margin guidance that is expected to increase by 150 bps to approximately 53%. EBITDA of 2017 is now expected to be approximately $98 million, up 30% from $76 million in 2016.

Operating income is likely to grow approximately 40% to about $76 million. Earlier, it was expected to increase 30%.

Earnings per share is now expected to increase 40% to $2.90, up from the prior expectation of $2.70.

Robust Operating Model

SodaStream has been benefitting from the growing popularity of sparkling water. The company’s cost-effective beverage carbonation systems help consumers transform ordinary tap water into soft drinks and sparkling water, providing a healthier alternative to carbonated sugary drinks. Owing to a shift in consumer preference toward healthier sparkling water, SodaStream repositioned itself in the United States to capitalize on this.

In fact, in the last reported quarter, the company registered revenue growth in each of its geographical operating locations backed by an increase in sparkling water maker units. In the first nine months of 2017, sparkling water maker starter kits increased 23.8%, while its gas refill units surged 10.3% year over year. Particularly, the company remains on track in building a global sparkling water franchise as evidenced by the increase in gas refill units to an all-time high of 8.4 million in the third quarter.

The company’s total revenues increased 12% year over year in the first three quarters of 2017, driven by a robust performance in revenues across all the regions. The performance was particularly solid in Germany, Canada, Japan, Australia and Austria.

Apart from robust sales figure, SodaStream has efficient cost-effective strategies which help the company enhance its operating platform. Additionally, advanced manufacturing capabilities enable the company to leverage its cost structure on higher production volumes.

The company’s gross margin expanded 200 basis points (bps) year over year. Adjusted EBITDA was up 53% year over year. Continued production optimization, higher production volume, and introduction of higher margin sparkling water makers, led to the upside.

Other Stocks to Consider

Investors can also consider other top-ranked stocks in the Consumer Discretionary sector space like Malibu Boats, Inc. MBUU and Polaris Industries Inc. PII, sporting a Zacks Rank #1, and NutriSystem Inc. NTRI, carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Malibu Boats’ earnings are expected to increase 25.1% this year.

Polaris Industries is expected to witness 39.3% growth in 2017 earnings.

NutriSystem’s 2017 earnings are expected to grow 63.9%.

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