Primo Earnings: Solid Start to 2023 Suggests Firm Is on Track to Meet Our Targets

Our $16 (CAD 21.50) per share valuation of no-moat Primo Water should not change much after the firm announced first-quarter earnings that suggest it is poised to meet our full-year targets. Our view is somewhat more favorable than the shares’ mid-single-digit percentage swoon in trading after the news was announced, which we believe is likely on account of modestly overinflated views of Primo’s near-term prospects (our $0.75 adjusted diluted EPS forecast for 2023 was modestly below analyst consensus prior to the announcement). We see little reason to change our long-term forecast materially (mid-single-digit percentage top-line growth, low-20s adjusted EBITDA margin, on average, over the next five years) and see the shares as somewhat attractive, as prevailing sentiment appears to be overly focused on near-term turbulence.