On Wednesday, Raymond James adjusted its stance on Primo Water (TSX:PRMW) Corporation (NYSE:PRMW) stock, moving its rating from Strong Buy to Outperform, with a price target set at $21.00. The adjustment comes as the company's shares have seen a significant 19% increase since the beginning of the year, nearing a three-year peak.
The firm cited several positive developments for Primo Water, including the sale of its European operations to Culligan, which allowed for a reduction in debt. Additionally, the company has expanded its share buyback program and announced a third consecutive annual dividend increase. Furthermore, Primo Water is on track for its eighth straight year of EBITDA growth.
Despite these positive indicators, Raymond James believes that most of the "easy money" has been made with Primo Water's stock. The firm pointed out that under the leadership of the new CEO, Robbert Rietbroek, who took the helm in January 2024, the company lacks operational catalysts due to the nature of its business.
The potential for mergers and acquisitions, particularly with small local water distributors, is noted as the only significant catalyst on the horizon. However, the timing of such activities remains uncertain, and Raymond James clarified that its estimates do not account for potential future M&A activities.
The firm maintains that there is still potential for the stock to reach its target price, albeit with less upside than prior to the stock's recent rally. Raymond James suggests that it would look for an increase in M&A activities before considering a revision of its target price for Primo Water.
InvestingPro Insights
As Primo Water Corporation (NYSE:PRMW) approaches its three-year peak, the latest data from InvestingPro underscores several key metrics that investors may find pertinent. With a market capitalization of $2.91 billion and a recent price close to its 52-week high, the stock displays a strong performance with a 1-month price total return of 13.38% and an even more impressive 3-month price total return of 22.4%. This aligns with Raymond James' observation of the stock's significant increase since the beginning of the year.
InvestingPro Tips highlight Primo Water's high shareholder yield and impressive gross profit margins, which stand at 64.17% for the last twelve months as of Q4 2023. These figures are reflective of the company's financial health and efficient management, which could be contributing factors to the firm's eight consecutive years of EBITDA growth. Moreover, analysts have revised their earnings upwards for the upcoming period, with the expectation that net income will grow this year.
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