Upgraded Operations And Beverage Expansion Will Widen Market Reach

Key Takeaways

• Strategic investments are enhancing BRC's operational efficiency, supporting expected long-term revenue and profitability growth.
  
• Expansion in distribution and beverage market presence is anticipated to bolster revenue and market share.
  
• Market challenges and cost pressures could impact BRC's profitability and revenue growth without strategic adjustments and focus on offset measures.

Catalysts

Through its subsidiaries, purchases, roasts, and sells coffee and coffee accessories in the United States.

• Black Rifle Coffee Company (BRC) has made strategic investments in operations and infrastructure, enhancing their operating structure and efficiency, which is expected to drive long-term revenue growth and profitability.
  
• The launch and expansion of Black Rifle Energy in the beverage market, with initial distribution reaching 17% ACV and plans for further expansion through Keurig Dr Pepper's distribution network, is anticipated to significantly impact future revenue and market share.
  
• BRC has demonstrated strong distribution growth in packaged coffee, increasing their ACV by 28 points to 45% over the past year, which is expected to continue and drive future revenue increases.
  
• Enhancements to the DTC (direct-to-consumer) segment, including improvements in user interfaces, product offerings, and subscriber engagement, are focused on stabilizing and potentially increasing revenue from this channel.
  
• Increases in operational efficiency and cost management, resulting in improved gross margins, adjusted EBITDA, and free cash flow, are strengthening the financial foundation for improved earnings and profitability.

BRC Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming BRC's revenue will grow by 13.4% annually over the next 3 years.
• Analysts are not forecasting that BRC will become profitable in next 3 years. To represent the Analyst Price Target as a Future PE Valuation we will estimate BRC's profit margin will increase from -0.8% to the average US Food industry of 6.3% in 3 years.
• If BRC's profit margin were to converge on the industry average, you could expect earnings to reach $35.7 million (and earnings per share of $0.14) by about April 2028, up from $-3.0 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 27.7x on those 2028 earnings, up from -61.2x today. This future PE is greater than the current PE for the US Food industry at 18.4x.
• Analysts expect the number of shares outstanding to grow by 7.0% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 6.21%, as per the Simply Wall St company report.

BRC Future Earnings Per Share Growth

Risks

• The direct-to-consumer (DTC) segment experienced a revenue decline of 14% in 2024 due to consumers shifting back to brick-and-mortar retail and resource reallocation towards wholesale, which could impact revenue growth if not stabilized effectively.
  
• Despite achieving significant distribution growth, revenue declined by 1% in 2024 compared to 2023, indicating potential stalling in overall sales momentum that could affect revenue projections.
  
• The overall coffee category declined modestly in 2024, and while the company grew its market presence, the sector's stagnation poses a risk to sustained revenue growth.
  
• Barter transactions and loyalty reserves previously bolstered revenue figures; their absence in 2025 will create a comparative headwind, potentially impacting overall earnings and cash flow.
  
• The substantial green coffee inflation, expected to impact gross margins by 2.5 percentage points in 2025, could pressure profitability if not offset by pricing strategies or operational efficiencies.

Valuation

• The analysts have a consensus price target of $3.167 for BRC based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $4.0, and the most bearish reporting a price target of just $2.5.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $570.9 million, earnings will come to $35.7 million, and it would be trading on a PE ratio of 27.7x, assuming you use a discount rate of 6.2%.
  
• Given the current share price of $2.3, the analyst price target of $3.17 is 27.4% higher.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.