Yeti’s Rally May Be Curbed by Fewer Commuters and No Tailgaters

(Bloomberg) -- A lack of coffee-slurping commuters and beer-guzzling sports fans could threaten the virus-fueled rally of Yeti Holdings Inc., the maker of insulated mugs and costly coolers.

That’s one of Goldman Sachs’s concerns as the bank moved to the sidelines Tuesday following the stock’s 175% surge from a March low. While shares have priced in increased interest in outdoor fun by sun-starved shut ins, that enthusiasm may be tempered by the potential for “lackluster” demand for drinkware from on-the-go consumers, analyst Alexandra Walvis said.

Yeti has benefited from the overwhelming desire by consumers to get outside during the pandemic, and that’s fueled enthusiasm from Wall Street, with the majority of analysts holding buy-equivalent ratings. Last month, Jefferies touted Yeti’s prospects as demand for its outdoor-friendly wares boosted web traffic. And about two weeks ago, Piper Sandler predicted that healthy demand trends would continue as consumers were outward bound.

But the pandemic isn’t purely a boon for Yeti, Goldman’s Walvis pointed out. Fewer workers heading to the office with coffees in tow could hurt Yeti because drinkware accounts for about 58% of sales, she said. Cutbacks on company budgets may additionally limit demand for the high-margin items, which are also sold through corporate channels. Walvis estimates Yeti derives a “low double-digit percent” of sales from corporate sales.

And it’s not just the stilled java junkies posing a threat. With stadium sporting events closed because of the coronavirus, there’s no tailgating -- and no need for coolers and cups that keep beer ice cold.

Yet, Walvis cautioned that her decision to downgrade to neutral doesn’t mean she’s no fan of the Austin, Texas-based company. The growth drivers that led to her buy rating in December are still intact as Yeti continues its distribution expansion at Lowe’s Cos., accelerates innovation and drives gross margin improvement through its direct-to-consumer business. She boosted her full-year profit estimates and her price target to reflect stronger outdoor product demand and ecommerce gains.

“We believe Yeti’s strong brand momentum and growth opportunity is now better understood by investors and reflected in the shares,” she said.

©2020 Bloomberg L.P.