Source: https://goo.gl/1ZiGoK
If someone were to ask which types of stocks outperformed all others for the last 50 years, undoubtedly most people would guess that technology, biotech, or energy stocks would be the biggest winners. But shockingly the best performing sector of the S&P in the last 50 years has been Food, Beverage & Tobacco within the Consumer Staple Sector as you can see in the graphs and tables below. (1)
So, while many investors continue to hunt for the next Google, Facebook or some other innovative new technology, software or services company, history reminds us that some of the most lucrative returns are generated by companies that service what people will use every day… staple items such as food and beverages.
As it so happens, Rich Allen, the former CFO of Snapple (one of the biggest winners in this best performing sector in the last 50 years) is back at it again, and this time may have an even bigger opportunity ahead of him.
As you may recall, Snapple was a tiny Long Island beverage company that eventually sold for $1.7 billion dollars (2) and after several other divestitures, mergers and acquisitions, is now called the Dr Pepper Snapple Group – with a market cap of approximately $17 billion (3). Let us take a moment to review why Snapple was such a hit and why Long Island Iced Tea Corp. (NASDAQ:LTEA) could be the next Snapple. First, consider their business sector.
Experts are saying the same market conditions which created Snapple’s meteoric rise (consumers replacing carbonated beverages with healthier non-carbonated options) will repeat over the next 5 years as consumers continue to demand better quality and healthier ingredients in almost every food and beverage category (4).
This powerful consumer trend toward better quality and healthier beverage options being experienced in the ready to drink (RTD) tea segment is why experts expect explosive growth over the next decade (4).
US sales were estimated to be $7.1 billion in 2015 according to Tea and Ready-to-Drink Tea: U.S. Retail Market, 6th Edition. The global growth trend is estimated to come in at over 6.6% annually. The projected annual global sales are expected to balloon to an estimated $75 billion globally by the year 2019 and as much as $103 billion by 2024 (4).
Rich Allen (previously of Snapple) has joined Long Island Iced Tea Corp. (NASDAQ:LTEA) CEO Philip Thomas on a mission to create a sequel to Snapple’s original Long Island success story.
Philip Thomas and Rich Allen lead a qualified team with over 100 combined years of experience with popular brands like Cadbury Schweppes, Arizona Beverage and Independent Liquor.
Why History May Repeat Itself for Rich Allen (previously of Snapple) and Long Island Iced Tea Corp. (NASDAQ:LTEA)
Annual Consumption (US):
In 2015, Americans consumed well over 80 billion servings of tea, or more than 3.6 billion gallons. About 85% of all tea consumed was Black Tea, 14% was Green Tea, and the small remaining amount was Oolong, White and Dark Tea. The U.S. is the third largest importer of tea in the world, after Russia and Pakistan, and the only western country to grow in tea imports and consumption (4).
Approximately four in five consumers drink tea, with Millennials being the most likely (87% of millennials drink tea) to choose tea as their beverage of choice (4).
Daily Consumption (US):
On any given day, more than one half of the American population drinks tea. On a regional basis, the South and Northeast have the greatest concentration of tea drinkers (4).
Iced Tea Consumption:
Approximately 85% of tea consumed in America is iced (4).
Ready-To-Drink Iced Teas:
Over the last ten years, Ready-To-Drink Tea has grown more than 15 fold (4).
Long Island Iced Tea Corp (NASDAQ:LTEA) has managed to (incredibly) secure the trademark to this very familiar cocktail name.
Leveraging this built-in brand familiarity with management’s industry relationships and distribution channels could result in explosive sales growth for this well positioned beverage company. In fact, since its inception just a couple years ago,
LTEA delivered an incredible 140% sales increase for the year ended December 31, 2016 over the same period in 2015.
LTEA’s beverage product line is currently available for purchase in 23 states, 4 of which have advanced distribution (NY, NJ, CT, MI). However the 2015 US Ready to Drink Tea Market is estimated at $7.1 Billion in the US (6) and Long Island Iced Tea Corp (NASDAQ:LTEA) has already managed to secure a 3.5% market share in certain channels by leveraging its initial distribution partners (7). Applying this rather conservative 3.5% market share estimate, this translates into future revenue potential of $248 million (or 55 times their current revenue). Could they do it? Based on their past performance as represented in the following chart we will let you come to your own conclusion.
Long Island Iced Tea Corp. (NASDAQ:LTEA)’s success extends beyond its immediately identifiable brand asset and name. It also has a lot to do with capitalizing on the current consumer trend towards healthier non-carbonated beverages.
Even more fundamental, Long Island Iced Tea Corp. (Nasdaq: LTEA) is winning customers over with its outstanding taste. We were impressed by the genuine reactions of taste-test customers captured in the following video
The Value Add: Long Island Iced Tea Corp. (NASDAQ:LTEA) believes it has positioned the product in a larger container size but at a lower price point than many of the established competitors in their space. In this light, the company believes it has an attractive replacement option for more established brands. Management has wisely chosen to position the product as a premium brand at $1.00-$1.20 for the 20 oz. size. Compare this to competitors like Tazo, Honest and Gold Peak which sell for $1.49-$1.69 but offer approximately 20% fewer ounces. This clearly makes LTEA a better value proposition which should also positively impact market share above the current 3.5%.
Growth Potential:
BREAKING NEWS: On April 19th, Long Island Iced Tea Corp. (NASDAQ:LTEA)announced that it has signed a long-term strategic distribution agreement with Big Geyser, the largest independent non-alcoholic beverage distributor in metro New York.
Big Geyser will be the exclusive distributor of the Company’s flagship iced tea and lemonade with a splash of tea 18oz bottle products in the metro New York region. The new partnership will become effective on April 24, 2017 and cover the five boroughs of NYC, Westchester, Putnam, Nassau and Suffolk counties.
Philip Thomas, Chief Executive Officer of the Company, commented, “Big Geyser is the single strongest distributor in the New York metropolitan market and we are proud to join their dynamic portfolio of iconic brands.
This partnership is transformational in having the potential to increase our metro New York footprint by over ten times to 25,000 doors, and allow us to restructure our business and focus on building our brands alongside Big Geyser.”
In addition to its US growth (not to mention their future US growth potential) the management team has significant international relationships which the company plans to leverage so as to realize market penetration throughout Canada, Central America, and South America.
Acquisition: In the fourth quarter 2016, Long Island Iced Tea Corp. (NASDAQ:LTEA) announced the proposed acquisition of the assets of ALO Juice® brand in an all stock deal.
Additionally the ALO products market itself grew 11% in 2016 which represents an additional opportunity for the company to capture even greater market share in the consumer trend away from traditional carbonated beverages to more healthy alternatives.
Lets recap: Strength in long term returns on lower volatility Consumer Staples and in particular, the stellar returns of Food and Beverage, a recognizable name, experienced management and a paradigm shift in the types of beverages consumers are demanding. The upside for LTEA appears very strong.
Bai Brands Cast Study (1)
- Sold to Dr. Pepper Snapple In November 2016 for $1.7bn cash, with stated 2017E revenue of $425mn
- Represents a 4.0x 2017E revenue multiple
- Revenues of $5mn in 2013, $17mn in 2013, $50mn in 2014E, $120mn in 2015 and $300mn in 2016
Body Armor Case Study (2)
- $20mn equity investment from Dr. Pepper Snapple Group (“DPS”) in August 2015 at $171mn valuation
- Revenues of $30mn in 2014 and 180% YoY growth through August 2015
- 5.7x 2014 revenue
KeVita Case Study (4)
- Sold to PepsiCo in November 2016 for $250mn, with 2016E revenue of $60mn
- Represents a 4.2x 2016E revenue multiple
- “Latest global food and drug company pursuing bolt-on dealmaking in order to make its’ product portfolio future proof”
To use an example, if you compare the possible $1 billion valuation to the current market cap, this could represent a 3000% return on investment for every dollar invested today, or for an example, approximately $120 a share. In this example, it could mean every $10,000 invested could earn $300,000.
Calculate your return on investment
$x return =$300000
Most investors look back on what we could have made if we had just bought the right stock and gotten in early, but fortunately for you, today you have the opportunity to look forward and actually get in at the ground floor.
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