Lake Street Capital Sees Primo Water As A Highly Scalable, Recurring Revenue Business Model

Matt Blazei of Lake Street Capital Advisors believes that Primo Water PRMW will benefit from a surge in demand as consumers continue to focus on health and wellness issues.

Shares were initiated with a Buy rating and a $6.50 price target Wednesday.

Primo Water provides multi-gallon purified bottled water, self-service refill water and water dispenses in both the United States and Canada. The company has a market cap of just over $110 million as of Wednesday.

“Primo Water has built a national network to provide retailers an alternative to prepackaged water through its bottle exchange refill solutions,” Blazei wrote in a note to clients on Wednesday.

Primo Water's national network is a class razor/razor-blade model and highly leverageable as the company continues to gain scale, according to Blazei. The analyst believes that the company will see a ramp up in profitability, accompanied by strong industry tailwinds.

Blazei notes that the majority of Primo Water's management team came from Blue Rhino. Blue Rhino pioneered a retail exchange model in the propane market where the team grew revenues by tenfold over a seven-year period.

The business model has been perfected into what Blazei describes as a “highly scalable, recurring revenue business model.”

A typical Primo Water customer makes 35 purchases a year, creating a stable revenue stream. The market for purified water is estimated to be $12 billion and growing.

Primo Water also provides environmental benefits. Seventy percent of bottled waters eventually end up in landfill, as opposed to Primo Water's exchange and refill solutions that address these environmental concerns.

Bottom line, Primo Water is an “overlooked microcap with a refocused strategy.”