Reeds Inc. (REED)

[stockerzzz1]

Long-term Target Price = $15

Seeking Alpha Article

"Our estimates assume Reed's is successful at expanding kombucha production. We also think the company's traditional drinks and private label brands will continue growing at their current rate. Start-up costs are likely to exert a drag on income, though. And while the manufacturing expansion will raise volume we estimate the kombucha line will grow in fits and starts as the technology is fine tuned. We estimate 2013 income (fully taxed) will advance to $.10 a share on sales of $40 million.

Once the scaling up is complete results could skyrocket. In 2-3 years sales could reach $75-$100 million to produce earnings of $.55-$.75 a share. Cash flow will be stronger than that due to the availability of extensive tax loss carryforwards. Reed's carries a fairly high debt load, so downside risk could be high in the event the kombucha line fails to develop. Losses could be substantial if problems arise, potentially requiring dilutive financing. If things pan out worthwhile appreciation could be realized. Applying a P/E multiple of 20x to the midpoint of our projected earnings range suggests a target price of $15 a share (+165%). Reed's could obtain an even higher valuation as an acquisition candidate. A large buyer theoretically could enhance margins and expand distribution."