Fevertree Drinks (AIM:FEVR) shares may struggle in the short term due to a challenging market, reckons Deutsche Bank, though in the long run they are "well positioned to capitalise" in the market for premium drink mixers.
A 'buy' recommendation was maintained, but the bank slashed its target price to 1,450p from 1,600p.
"We continue to believe Fever-Tree is well positioned to capitalise on the long-term premium mixer opportunity given its strong brand equity and large white space opportunity overseas," said analyst Deirdre Mullaney.
"However in the near term, we think the stock will struggle given the challenging market backdrop."
The target price was cut as Mullaney revised her forecasts for this year and next reflecting a negative expected weather impact from this summer and a weak global spirits market.
Alongside falling costs, the analyst predicts that profit margins will be helped by new supply agreements and supply chain improvements, driving a stronger recovery than the wider City consensus expects in outer years.
However, she has cut the forecasts to a lower base, with a net result that adjusted earnings per share are downgraded 5% between 2024 and 2027.
As a result, the shares trade for 23.1 times forecast earnings for 2025 on a P/E basis and 13 times on an EV/EBITDA basis, which the analyst thinks is "an attractive valuation given the long-term growth potential".