Wall Street generally agrees that Coca-Cola making its largest acquisition ever in BodyArmor is a good thing.
"Net, we think the deal is a positive for Coca-Cola as it provides a new leg of growth in North America with ownership of the fastest-growing, number two retail value share brand in the sport beverage category," said veteran beverage analyst Laurent Grandet at Guggenheim.
With its long-time sports drink brand Powerade, almost an afterthought in a market dominated by PepsiCo's Gatorade, Coca-Cola said Monday it would spend $5.6 billion to buy BodyArmor.
BodyArmor was launched in 2011 by Vitaminwater/Smartwater founder Mike Repole (who unloaded VitaminWater maker Glaceau to Coke for $4.2 billion in 2007) as a better-for-you sports drink. Each of the brand's flavors feature coconut water, more electrolytes than traditional sports drinks and are lower in sodium.
Coke took a 15% stake in BodyArmor in 2018.
The brand's marketing of being a "healthier" sports drink — and early backing by NBA great Kobe Bryant has helped it carved out a solid number two position in the highly lucrative category. BodyArmor currently has sales of $1.4 billion, Coke said in the release announcing the transaction.
According to recent Nielsen data, sales of BodyArmor have surged 52% in the past 12-weeks and holds a 19% share of the sports drink market.
Grandet says BodyArmor is likely to be a nice tailwind to Coke's results moving forward.
"Assuming Coca-Cola will sell finished products to its bottling network to begin with, we estimate BodyArmor could add 300 points of growth to the North America segment and 100 basis points to the consolidated company once integrated (assuming $1 billion in reported sales growing 50%); longer term we could envisage Coca-Cola would leverage its concentrate model, which would increase BodyArmor's operating margin but also reduce the contribution to the top line," explained Grandet.
Grandet rates Coca-Coca shares at a Neutral.