How I Made $5000 in the Stock Market

This Water Stock Is Dehydrated. What Could Bring It Back.

Sep 27, 2025 03:00:00 -0400 by Evie Liu | #Consumer

Saratoga Spring Water is one of many lines owned by Primo Brands. (Sergi Alexander/Getty Images)

Key Points

Primo Brands, the bottled water company that produces Poland Springs and Pure Life, is looking dehydrated.

While critics wonder if the country’s leading water vendor can regain lost costumers due to operational issues earlier this year, its boosters believe the stock could be revived soon thanks to the water market’s strong growth.

Formed through a merger of Primo Water and BlueTriton Brands last November, the company’s comparable net sales in the second quarter are down 2.5% from a year ago. All sales channels—from retail to delivery to restaurants—are seeing declines.

Everything that could go wrong, has gone wrong. Cold and rainy weather in the Northeast this spring meant fewer outdoor gatherings—and less consumption of bottled water. After a Texas facility was struck by a tornado last winter, supplies for the Southwest and Southeast region were disrupted.

What’s more, integration challenges after the merger—such as the consolidation of warehouses, truck delivery routes, and workforce cuts—have disrupted Primo’s operation. At its worst, up to 20% of Primo’s delivery customers were affected by either a canceled or delayed delivery, according to the firm.

Susie Henderson, who lives in northeast Houston with her husband and children, typically gets three to four 5-gallon jugs of water delivered to her house every other Friday by ReadyRefresh, which was owned by BlueTriton before the merger.

Since the family moved in May, she hadn’t received those water for weeks. “We scheduled it, but they never showed,” she said.

Among the three million user base in the Primo’s delivery business, 1% to 1.5% have left due to frustration with the service, according to Primo itself.

In the August earnings report, Primo management lowered guidance for fiscal 2025, expecting sales to be flat or grow by 1%, down from the 3% to 5% growth forecast in May. As of Thursday’s close, Primo stock has declined 28% this year to trade around $22.

“There are some investors out there waiting for a track record of demonstrated success as a combined business before getting involved,” says Mizuho analyst John Baumgartner, who has a Buy rating and $40 price target on Primo stock.

Much of Wall Street believes Primo’s issues are temporary—11 out of 13 analysts tracked by FactSet have a Buy rating for the stock, with an average target price 54% above the current level—but cracks have started to appear in that consensus.

Last month, Deutsche Bank analyst Steve Powers downgraded Primo stock to Hold from Buy, and lowered his target price to $26 from $28. “A series of successive operational and financial setbacks call into question our prior thesis and undermine our conviction,” he wrote.

It shouldn’t be this bad. Over the past 20 years, per-capita consumption of bottled water broadly has increased at an average annual rate of more than 5%, according to Baumgartner, while soda consumption has been slipping.

“In the food and beverage industry where volume growth is generally challenged, water is one of the few standout categories,” says TD Securities analyst Derek Lessard.

Primo is the largest player in retail water with about 20% market share. Coca-Cola and PepsiCo, which owns Dasani and Aquafina, respectively, are its major rivals. Although private labels are posing threats to branded water as inflation drives more consumers to cheaper alternatives, Primo’s retail business has gained market share this year. Following a weaker second quarter, sales have been accelerating again in the third quarter, according to the firm.

The company has continued to expand its market penetration: Points of distribution have grown 13% year to date.

Primo’s premium brands like Saratoga and Mountain Valley Spring Water—presented in cobalt‑blue and emerald‑green glass bottles—are another growth engine with higher brand value and profit margins.

The company is backing these labels with focused marketing: Collaborations with well-known chefs, placements on programs such as Top Chef, sponsorship of high‑visibility events like the Golden Globes, and quick response to viral social media trends.

In the first half of 2025, Primo’s premium water sales have grown 46% from a year ago, reaching $161 million—just below 5% of the firm’s total revenue.

“What’s interesting here is the ability to premiumize what you would otherwise think is a commodity,” Mizuho’s Baumgartner says.

Beyond retail sales, Primo’s “crown jewel” is its direct delivery business that accounts for 45% of the revenue. Primo is the largest player in delivered water in the U.S., with about two-thirds market share. The company runs its own truck fleet and delivers multi-gallon jugs to millions of homes, offices, and schools across the nation.

The subscription-like business enjoys a steady customer base and predictable cash flow with strong pricing power. It also has a strong moat—special advantages that prevent competitors from copying its success—thanks to the truck fleet, water depots, and established relationships with clients.

“That’s the beauty of this recurring revenue model,” Baumgartner says. “The customers are basically paying for the convenience of not having to bring these heavy bottles of water back and forth.”

As for the recent operational challenges, Primo said it has restarted the facility damaged by the tornado and added more inventory to make sure it meets customer demand. Management expects service issues to be back to normal by the end of September.

Delivery success rate has already increased from 80% in early May to 92% in the most recent week. The company is working to get the rate back to above 95%, as it was before the merger.

“We believe that we’re largely through what would be the peak period of frustration,” said CFO David Hass at a September conference. Primo said it’s already added a lot of customers back to the system.

Primo’s dampened price means the stock could be ripe for a bounce back if the integration hiccups are fixed and investors regain confidence. Management is targeting about $200 million cost savings from the merger in 2025 and $300 million in 2026.

“Since they’re dealing with a single product, they’ve got the ability to squeeze more efficiencies out of the network,” TD Securities’ Lessard says, “Primo is a company that still has a lot of room for growth and cost synergies, but the valuation isn’t being fully reflected just yet.”

Now management just has to prove it.

Write to Evie Liu at evie.liu@barrons.com