Fevertree Drinks Shares (LON: FEVR) Gain With Analyst Upgrades

Shares in Fevertree Drinks PLC (LON: FEVR) experienced a surge this morning following a positive analyst upgrade, hinting at a potentially significant shift in the company's trajectory within the competitive beverage market. The stock is trading 4.65% higher at the time of writing. The stock has been building on year-to-date gains of 22.65%, reflecting growing market optimism.

The catalyst for this upward movement stems from Jefferies analyst Edward Mundy's decision to upgrade Fevertree from a “Hold” to a “Buy” rating. This revised assessment is accompanied by a raised price target of 1,100 GBp, a considerable increase from the previous 900 GBp. The rationale behind this upgrade centers on Fevertree's strategic partnership with Molson Coors Beverage Company, a collaboration viewed as transformative for the premium mixer brand.

The partnership with Molson Coors, formalized earlier this year, grants the beverage giant exclusive commercialization rights for Fevertree's products in the U.S. market. This encompasses a wide range of activities, including production, marketing, sales, and distribution. Molson Coors also acquired an 8.5% stake in Fevertree for £71 million, solidifying its position as the company's second-largest shareholder. The markets anticipates this alliance will leverage Molson Coors' extensive distribution network to accelerate Fevertree's expansion in the critical U.S. market.

Fevertree's recent interim results, announced in September, revealed a mixed financial performance. Revenue saw a modest 2% increase at constant currency, reaching £172.2 million. Adjusted EBITDA rose by 1% to £18.4 million, with a slight margin improvement of 20 basis points to 10.7%. However, profit before tax experienced a 15% decline, falling to £11.2 million. Despite this dip in profit, the company's cash reserves nearly doubled to £130 million, boosted by both trading performance and the inflow from the Molson Coors partnership. Furthermore, Fevertree demonstrated confidence in its financial position by declaring an interim dividend of 5.97p per share, a 2% increase year-on-year, and extending its share buyback program by an additional £30 million, set to continue into 2026.

The transition to the Molson Coors partnership has not been without its challenges. The termination of a major U.S. bottling arrangement has led to Fevertree exporting products from the UK, incurring a 10% U.S. import tariff. To mitigate this impact, Fevertree and Molson Coors have agreed to equally share the tariff costs. The company is actively exploring onshoring production in the U.S. to improve margins and reduce its exposure to these tariffs.

The Jefferies analysis highlights that the Molson Coors partnership is a “game changer” for Fevertree's potential earnings power. The markets echoes this sentiment, anticipating that the collaboration will provide a substantial uplift in scale and execution capability within the U.S., while simultaneously de-risking the supply chain and boosting brand awareness through enhanced marketing efforts.

Analyst Summary: Bull and Bear Cases

While operational hurdles remain, the strategic alliance with Molson Coors, coupled with positive analyst sentiment, appears to have instilled a bullish outlook among markets. Today's price movement reflects the potential for future growth and improved profitability, driven by the expanded reach and resources afforded by the partnership.