Primo Water: Execution Remains Solid, but Commoditized Water Leaves Little Room for Margin Lift

We are trimming our fair value estimate for Primo Water to $15.70 and CAD 20.90 (from $16.20 and CAD 22), which implies a 19 times multiple against our 2024 earnings estimate. The decline is driven by trimmed annual sales growth assumptions over the next five years to 5.0% (from 5.5%), reflecting normalized demand from pandemic levels, and by a 160-basis-point reduction in operating margin estimates to an average of 9.9% (from 11.3%) to incorporate higher labor and fuel costs. Primo Water shares are moderately undervalued, trading at an 11% discount to our intrinsic valuation, but we suggest investors wait for a wider margin of safety before buying into this name.