Tilson’s Bullish Bet on SodaStream Spurs Stock AdvanceGabrielle Coppola
SodaStream International Ltd., the Israeli maker of home soda machines, rebounded last week after hedge-fund manager Whitney Tilson said he’s buying the stock after it slumped to a 14-month low.
Shares of Lod, Israel-based SodaStream gained 2.7 percent last week to $40.54, the best performance in three weeks, after Tilson, who runs Kase Capital Management, said in a letter to investors that he established a long position in the shares last month. The stock is still down 18 percent this year, the biggest slump on the Bloomberg Israel-US Equity Index. The measure of the largest Israeli companies traded in New York rose 0.7 percent last week.
The company, which makes soda machines that can be used at home, forecast 2014 revenue below analyst estimates on Feb. 26, prompting the number of buy recommendations to fall to three, the lowest in 2 1/2 years. Tilson said that speculation SodaStream will prove to be a short-lived fad echoes concern investors had about the Ugg boots produced by Deckers Outdoor Corp., which more than doubled last year as revenue grew 10 percent.
SodaStream “users are very loyal and will continue using and buying the product,” New York-based Tilson said in a March 7 phone interview. “That’s the upside of the company, and a stock price that’s gotten clobbered based on short-term fixable issues that reflects the belief that it’s a fad when it’s not.’
Tilson said he invested in Deckers in February 2013 when the stock traded at $41, and sold it a year later at $78 a share.
MagicJack VocalTec Ltd., whose founders pioneered voice-over-Internet technology and is based in Netanya, Israel, has rallied 33 percent since Feb. 7. That’s before Tilson said the stock has the potential to emulate the advance in Netflix Inc., the world’s largest subscription video-streaming service, which quadrupled last year.
Tilson’s Kase fund gained 16.6 percent in 2013, compared with a 32.4 percent total return on the Standard & Poor’s 500 Index, according to a Feb. 10 annual letter from the fund.
Just three of the 15 analysts covering SodaStream have a buy rating on the stock, the lowest number since July 2011, according to data compiled by Bloomberg. That compares with nine recommendations in March of last year.
Barclays Plc cut its outlook on SodaStream to the equivalent of hold from buy and lowered its price target 27 percent to $40, according to a report dated March 3. SodaStream’s biggest challenge will be to increase penetration in the U.S. without eroding its profit margins, Barclays’ analyst David Kaplan wrote.
The company also faces new competition from Waterbury, Vermont-based Green Mountain Coffee Roasters Inc., which is developing a make-your-own, single-serve product similar to SodaStream’s. Coca-Cola Co. agreed Feb. 5 to buy a 10 percent stake in Green Mountain for about $1.25 billion.
SodaStream has rallied 13 percent since then as investors speculated the deal would pressure Coke rival PepsiCo Inc. to partner up to counter the threat. Tilson also cited a possible alliance with Pepsi or another large beverage maker as a reason to buy SodaStream shares.
SodaStream is unlikely to find a larger partner, said Akshay Jagdale, an analyst at KeyBanc Capital Markets, who downgraded the shares to hold from buy on Feb. 6. He now believes Green Mountain’s new single-serve product is ‘‘the best way to play home carbonation.”
“I don’t think Pepsi’s going to buy them, because they don’t have the mousetrap to produce a good enough drink for Pepsi,” Jagdale said by phone from San Francisco in a March 7 interview.
PepsiCo Chief Executive Officer Indra Nooyi said on a Feb. 13 conference call that the company sees in-home carbonation as “another distribution channel” for carbonated and sparkling beverages and is “working with multiple people” to be sure it chooses a partner “who we are sure will commercialize” the product.
The Bloomberg Israel-US gauge rose to 117.01 last week, extending this year’s advance to 5.2 percent, compared with a 1.4 percent advance for the TA-25 gauge. The TA-25 index declined 0.5 percent at 1:58 p.m. in Tel Aviv today.