Primo Water: Decent Valuation Post-M&A Fundamentals

Core Viewpoint - Primo Water Corp is positioned as an attractive investment opportunity in the water sector, particularly following its strategic divestiture of European operations and focus on North America, which has strengthened its financial position and growth potential [2][4]. Company Overview - Primo Water is a US-based company specializing in multi-gallon bottled water services, including dispensers and refill machines, with a significant presence in the US, Canada, and Israel [3]. - The company reported revenues of approximately $1.77 billion and an adjusted EBITDA of $380 million, reflecting a robust EBITDA margin of 21.5% [3]. Financial Performance - Following the divestiture, Primo Water has over $500 million on its balance sheet and has initiated a $75 million share repurchase program [2]. - The company has achieved a 10-year EPS growth rate of 18% and is expected to continue growing at double-digit rates [4]. Merger with BlueTriton - The proposed merger with BlueTriton is expected to create a combined entity with net revenues exceeding $6.5 billion and an EBITDA margin of 23%, enhancing market competitiveness [5][6]. - The merger is structured as an all-stock transaction, with existing shareholders of Primo expected to own 43% of the new company [6]. Market Potential - The US bottled water market is valued at approximately $25 billion, presenting significant growth opportunities for the combined company [7]. - The merger is anticipated to generate synergies of over $200 million, further bolstering financial performance [5]. Valuation and Investment Thesis - The company is considered undervalued, with a potential price target of around $27 based on a conservative 25x P/E ratio for 2025 [8]. - The expected annualized growth rate for the combined entity is projected to be between 15% to 20% over the next few years, indicating strong upside potential [7][8].