Today, I'm continuing my series of looking at the five stocks David Einhorn of Greenlight Capital added to his portfolio last quarter...
One of them is bottled-water company Primo Brands (PRMB). Here's how David summarized the company in his second-quarter shareholder letter:
Primo Brands (PRMB) provides bottled water through the retail channel as well as water delivery to homes and businesses. Its brands include Poland Spring, Pure Life, Mountain Valley and Saratoga. Following its merger with competitor BlueTriton Brands, integration challenges weighed on results and contributed to a material decline in the stock price. We believe these issues are temporary and that the merger will create synergies over time.
As I shared on Monday, here's what David wrote about the stock:
We acquired our shares at an average price of $20.20, implying a 12% free cash flow yield on our expectation for 2027 results, which compares to peer free cash flow yields of 3-5%. PRMB ended the quarter at $24.44.
When I took a quick glance at the stock on Tuesday, I noted that it has had many ups and downs since its 1992 IPO at a split-adjusted $3.40 per share.
More recently, it had a huge run-up to around $35 early last year. But it has since pulled back to around $22 today, as you can see in this chart:
Today, let's take a closer look at Primo Brands' historical financials...
The company is the result of a 2024 merger between Primo Water and BlueTriton, which was owned by two private-equity firms. BlueTriton was formed in 2021 by acquiring Nestlé's massive North American bottled-water division. Later that year, BlueTriton also acquired Saratoga Spring Water. As a result, Primo Brands' historical financials only go back to 2021 because they're based on when BlueTriton was formed.
Since then, revenues have doubled, and operating income has risen from almost nothing to more than $700 million annually:
Margins also improved substantially over this period:
The cash-flow statement shows that capital expenditures ("capex") have risen sharply for a number of reasons: post-merger integration expenses, direct-delivery and fleet upgrades, and investments in production and bottling expansion to meet growing retail demand for its primary brands.
Nevertheless, operating cash flow grew even faster. This resulted in free cash flow ("FCF") turning positive in 2023 and growing to a healthy $372 million in the past 12 months:
The two private-equity firms acquired BlueTriton from Nestlé for $4.3 billion. As a result, Primo Brands has $5.3 billion of net debt – this is high, but not dangerously so:
In the past year and half since the merger, Primo Brands has returned $708 million to shareholders via a modest dividend (currently yielding 2.2%) and share repurchases that reduced the diluted share count by 3% year over year in the latest quarter:
Overall, this is a solid financial picture. It's a good – though not great – business, and all of the key metrics are trending in the right direction.
As for valuation, at around $21.62 as of writing this morning, the stock is trading at 16.5 times this year's consensus analysts' estimates and 14.5 times next year's. That's a modest – though not screaming cheap – multiple for a high-quality business like Primo Brands.
It's around the midpoint of where the stock has traded in the past two years, ranging from 10 to 30 times forward price to earnings (P/E), as you can see in this chart:
I think this stock is interesting enough to warrant a deeper dive, so stay tuned...
As a final note, our offices and the markets are closed on Monday for Labor Day. Look for my next daily e-mail on Tuesday, September 8. Have a great Labor Day weekend!
Best regards,
Whitney
P.S. I welcome your feedback – send me an e-mail by clicking here.
P.P.S. I continue to be amazed at the life-changing effects of GLP-1 weight-loss drugs...
My buddy Aaron Tabackman started taking Eli Lilly's (LLY) market-leading drug, Zepbound, in December. Since then, he has lost 90 pounds, going from 245 to 155 (coincidentally, my exact weight)! I couldn't believe my eyes when I saw him earlier this week for a round of doubles – see the before and after pictures below.
(My team and I at Stansberry Research think Lilly's stock is going to be a big winner, driven by Zepbound and its new, even more powerful GLP-1 drug, retatrutide. That's why we recommended the stock three months ago in our flagship newsletter, Stansberry's Investment Advisory. Subscribers can read our full report here, which includes our specific buy advice. If you're not a subscriber already and would like to become one, click here.)
I asked Aaron how losing so much weight has changed him. He replied:
It eliminated four diseases I had: I'm no longer obese, no longer pre-diabetic, no longer have Fatty Liver Disease, and no longer have sleep apnea!
I had to get all new clothes because I went down two sizes, from XL shirts to a medium and from 36" waist to 32" waist! TJ Maxx is a godsend!
It's also helped my tennis. I get to balls better. Groundstrokes on the run and sliding on Har-Tru are easier. Nevertheless I still need to work on my game particularly how to move. And that's a skill you need to practice regardless of weight...
As for how it has affected his love life, he said:
Let's just say, I've gotten more attention whereas before I got no attention whatsoever. But probably even more importantly than that is the weight loss has raised my self-esteem so my antenna is up and I'm more confident in approaching women.
I'm really happy for you, Aaron!
