BellRing Brands is positioned well for the secular growth in protein consumption. Increased protein consumption is a secularly growing trend in Americans' diets. Tailwinds in health, fitness, and wellness are driving the growth in the functional beverage category. Protein shakes appeal to consumers due to their convenience and better-for-you attributes. Premier Protein is the #1 RTD protein shake.
The company has seen steady growth across channels. Solid growth in both tracked and untracked stores and brick & mortar and e-commerce points to continued trial and repeat purchases ahead.
BellRing Brands may have a new market opportunity with GLP-1 patients. Semaglutide diabetes/weight loss drugs cause a significant loss in appetite for patients who consume less food and lose weight. A considerable amount of the weight loss is from muscle. Protein shakes fulfill multiple needs by making it easier for patients to consume protein. BellRing Brands has only recently targeted the patient population with marketing efforts. For most companies in consumer staples, GLP-1 is a volume concern, while for BellRing Brands, it is a potential opportunity.
New capacity expansion will unlock further growth. Due to production capacity constraints, BellRing Brands' inventory levels have been below target. The company is on track to increase its RTD shake production capacity by 20%. The additional capacity will enable more flavors and promotions. Future announcements to expand capacity further will be a positive catalyst. By partnering with co-manufacturers Post Holdings and SunOpta in its latest expansions, the company enjoys high 20%+ margins and minimal capex needs.
The valuation appears expensive, but estimates are going higher. Over a trade duration, we expect the positive estimate revisions will continue to be a tailwind for share outperformance. We see an upside of over 30% from current levels as estimates continue to be raised and rolled forward. With one of the highest organic volume and EPS growth CAGRs in consumer staples, the valuation should be among the highest in the sector. The company does not have the pricing power, volume growth, and margin expansion concerns that nearly every company in the industry has. Leverage will soon fall below 2x, and either share repurchases or acquisitions will be a larger component of future returns.