Uncertainty Weighs Heavily On Senomyx Ahead Of Key Pepsi Decisions

Absent enthusiastic, or even encouraging, adoption of the company's flavor technology products, Senomyx (NASDAQ:SNMX) has languished for quite some time. The company has developed a portfolio of assets for food, beverage, and personal care companies that address sweet, savory, cooling, and bitter blocking, but there have been relatively few solid commercial bites so far.

Now the company is heading into a period where the decisions of key partner PepsiCo (NYSE:PEP) will have a significant impact on the company's future. Should PepsiCo move ahead with commercialization of the sweetness-enhancing compound it has been testing in Mug root beer and Manzanita Sol, upwards of $100 million in 2020 revenue comes into view and the company gets a major boost to its credibility. If PepsiCo backs away, the road in front of Senomyx gets even more challenging but is not the end of the story.

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Uncertainty Weighs Heavily On Senomyx Ahead Of Key Pepsi Decisions

Seeking Alpha: The Pepsi Launch Approaches, But Senomyx Needs To Deliver On Its Own Sales Efforts

The wait drags on for Senomyx (NASDAQ:SNMX), testing the patience of shareholders ahead of a long-anticipated launch from its major partner PepsiCo (NYSE:PEP). Chemophobia-laced "healthy living" nonsense aside, the fact remains that additives remain integral to the packaged food and beverage industries and a large revenue opportunity for Senomyx in the coming years.

The key question remains as to whether Senomyx can convert that large opportunity to real sales. Although the company's direct sales efforts have long lead times (up to, or beyond, two years in some cases), some fruits of those efforts should be visible in the next twelve months. Likewise, investors will know soon enough whether PepsiCo is going to launch products incorporating Senomyx's Sweetmyx S617 with its full marketing vigor or whether it will be a more cautious and limited effort. Delays in commercialization efforts and increased execution risk in my model have led to a lower fair value, but that fair value target remains close to $10 and offers substantial upside if those orders do in fact materialize.

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The Pepsi Launch Approaches, But Senomyx Needs To Deliver On Its Own Sales Efforts

Seeking Alpha: Despite A Reminder Of The Risks, Senomyx Still Has Appealing Potential

Wall Street can be a harsh teacher (I have the grey hairs to prove it), so it's best to learn certain lessons with a minimal number of repetitions. One of those lessons is that it almost always pays to be skeptical when it comes to small development-stage companies that depend upon commercial launches controlled by larger companies.

Senomyx (NASDAQ:SNMX) has an interesting IP and technology portfolio for taste receptor-based food additives and a high-profile partnership with PepsiCo (NYSE:PEP). Optimism over the commercialization potential of an additive designed to reduce the sugar/HFCS content of sodas and other beverages sent these shares close to $13 this year, but then the market swept the legs out from under the stock on worries about a later-than-guided commercial launch from Pepsi and lackluster self-directed sales efforts.

I had been less bullish on Senomyx's near-term prospects than at least some of the sell-side, so the consequences of this six-to-nine month delay aren't as bad to my valuation. I still believe this is a high-risk/high-reward situation, but the commercial potential of products that can reduce the sugar or salt content of food and beverages, or enhance their savory characteristics is such that this is still a stock for aggressive investors to consider as a 2015 breakout story.

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Despite A Reminder Of The Risks, Senomyx Still Has Appealing Potential

Seeking Alpha: A Quietly Busy Senomyx

While shares of small-cap food biotech Senomyx (NASDAQ:SNMX) have pulled back almost 30% from my last piece as enthusiasm has faded in the wake of securing GRAS determination for key product Sweetmyx S617, they're still up more than 50% from my Top Idea write-up in 2013. More importantly, Senomyx continues to make significant progress with its developmental and commercial programs. Although Senomyx shares may well get batted around this year as the market vacillates between risk-on and risk-off, the significant potential of the company's sweet and savory programs is a good reason to buy or continue holding the shares.

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A Quietly Busy Senomyx

Seeking Alpha: Can Coca-Cola Amatil Bring Back The Fizz?

Bottling is often overstated as a great business. Bottling and selling assorted flavored sugar waters with Coca-Cola (KO) or PepsiCo (PEP) labels can be a license to print money in some cases, but other factors like competition, consumer preferences, and the power of retailers can make a big difference. Investors in Coca-Cola Amatil (OTCPK:CCLAY) have seen just how significant these factors can be, as the shares of what has been regarded as one of the best-run Coca-Cola bottlers are down more than 40% over the past year as a variety of factors have combined to undermine profits.

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Can Coca-Cola Amatil Bring Back The Fizz?

Seeking Alpha: With GRAS Status In Hand, It's Close To 'Go Time' For Senomyx's Partners

Patience with development-stage food additive developer Senomyx (SNMX) has really started paying off over the last six months. Investors started bidding up the shares on expectations of FDA approval of key product S617, as well as optimism that the company's direct sales effort will lead to greater adoption of products already shown to replace significant amounts of sugar or other sweeteners and those that enhance savory flavors.

Up almost 170% from where I recommended the stock as a Top Idea, it's tempting to call it a day and take the winnings off the table. While obtaining the GRAS designation removes a critical commercialization hurdle for Senomyx's partners PepsiCo (PEP) and Firmenich, there are still many operating risks remaining, including commercial introduction and acceptance of products using Senomyx's additives. I'm bullish about the prospects of S617 in beverages like sodas and sports drinks, but I'm not so bullish yet on the opportunities in foods like baked goods. If adoption there proves stronger than I currently expect, the upside for the shares could be considerable.

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With GRAS Status In Hand, It's Close To 'Go Time' For Senomyx's Partners

Seeking Alpha: Senomyx Is Getting A Second Wind On Commercialization Potential

I can't stand casinos, so I suppose I use investments like Senomyx (SNMX) to scratch that speculative itch. That's not to say that I don't do the same level of due diligence before, but I go in with open eyes about the likelihood of the story working out. For most of the past three years, it didn't look like this story was going to have a happy ending, as the Street's frustration with an apparent lack of progress in the company's research efforts and licensing relationships took the stock from over $7 to below $2.

Now it looks like the story is heading in the other direction. Although licensing relationships with companies like Nestle (OTC:NSRGY) and Ajinomoto really haven't delivered much and the company is pursuing an uncertain path of commercializing its own compounds, management believes that its key asset (S617) may get FDA approval in the first quarter of 2014 and start appearing in PepsiCo (PEP) products next year.

With management issuing bold guidance for profitability in 2015, these shares may still have room to run and reward those shareholders who've had the patience to hang on this long. In fact, if Pepsi beverages containing S617 can get 20% of the U.S. diet soda market and Senomyx's own commercialization strategies can deliver 5% share in markets like sugar reduction and savory enhancement, upside of more than 80% is possible from here.

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Senomyx Is Getting A Second Wind On Commercialization Potential

Investopedia: Coca-Cola FEMSA Adds More Volume In Brazil

Coca-Cola FEMSA (NYSE:KOF), the second-largest Coca-Cola (NYSE:KO) bottler in the world and owned by both Coca-Cola and FEMSA (NYSE: FMX), continues to show a willingness to invest for future growth and margin leverage. KOF has spent roughly $6 billion over the last two years, including nearly $700 million to expanding into the Philippines. Now KOF has added some significant assets in Brazil with the $1.9 billion acquisition of Spaipa, the second-largest private Coca-Cola bottler in Brazil.

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Investopedia: Can Mondelez Live Up To The Sell-Side Hype

Not unlike the apparent love affair between Wall Street and Kraft (Nasdaq:KRFT), Mondelez (Nasdaq:MDLZ) gets quite a bit of love from the sell-side. Many analysts seem convinced that Mondelez can significantly boost its organic growth over a relatively short time and likewise significantly upgrade margins. While I think Mondelez is basically a good company, I worry that the expectations bar is being set at a level where a failure to perform is going to create a real backlash. Even if I use growth expectations beyond the published estimates of the bulls, I can't really get to a point where Mondelez looks cheap today.

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Investopedia: Kellogg Reports Unimpressive Earnings

While the bull market in consumer stocks has slowed a bit over the past quarter, and Kellogg's (NYSE:K) performance has trailed others like General Mills (NYSE:GIS) and Post (Nasdaq:POST), the stock was still trading quite close to its 52-week high prior to its second quarter report. Unfortunately for shareholders, organic growth came in pretty weak. While the second half should be stronger from a margin perspective, a high valuation and less impressive growth trajectory could put these shares on ice for a couple of quarters.

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Investopedia: PepsiCo Has Caught Up, Now It Needs To Outperform

Even though PepsiCo (NYSE:PEP) is routinely lashed for not being Coca-Cola (NYSE:KO), I wrote earlier in this year that I thought the stock's relative undervaluation to the increasingly overvalued packaged food sector seemed out of line. Since then, PepsiCo has closed the gap with the likes of Coca-Cola, Mondelez (Nasdaq:MDLZ), and Kellogg (NYSE:K) as the shares have underperformed the S&P 500 by a smaller amount.

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Investopedia: Even When Coca-Cola Stumbles, It Does Okay

If this is what a bad quarter from Coca-Cola (NYSE:KO) looks like, it's not hard to see why the stock carries a rich multiple. Even in one of the weakest quarters in a long time (from a volume perspective), Coca-Cola did well with its margins. Add in the possibility of improving the company's global operations, particularly in fast-growing markets like China and Indonesia, and the long-term prospects still look pretty good. Alas, the stock still isn't anything close to “cheap” and is unlikely to become so anytime soon.

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Investopedia: McCormick Looks Premium-Priced Even With Premium Performance

I appreciate why McCormick (NYSE:MKC) has almost always carried a premium valuation in the packaged food sector. The company holds effectively two-thirds of the U.S. market for spices, and has multiple opportunities to generate above-average growth in areas like dry dinners and frozen foods, and not just in North America. Even so, there is a fair price for every asset and McCormick's valuation seems well more than “fair” these days.

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Investopedia: Diamond Foods Making Better Moves, But Large Uncertainties Remain

Diamond Foods (Nasdaq:DMND) is trying to get back on solid footing after a series of self-inflicted wounds threatened the survival (or at least the independence) of the company not so long ago. While rehashing the company's accounting issues and strategic missteps is beyond the scope of this article, the fact remains that Diamond Foods is still in the middle of its clean-up operations. Valuing these shares is tricky given all the factors at work, but they do appear undervalued provided that the company can continue to repair its margins and clean up its capital structure.

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Investopedia: Mondelez Isn't As Good As Nestle, But Priced Like It Is

While I realize that Wall Street typically prices stocks on the basis of what investors believe a company will look like in the future, I'm still surprised by the relative valuations that come out of the process. Take the case of Mondelez (Nasdaq:MDLZ). This company is focused on multiple growth areas in the packaged food space (and has a large developing market exposure) and does indeed post better growth than many of its peers, but the overall combination of growth and margins wouldn't normally seem to argue for valuation on par with Kellogg (NYSE:K) or Nestle (Nasdaq:NSRGY). Consequently, although I do expect Mondelez to do well relative to its sector in terms of reported growth, I continue to believe that valuation is already too steep.

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Investopedia: On Track With Volumes And Margins, Coca-Cola Refreshes

As a value-oriented investor, once you relax and accept the fact that stocks like Coca-Cola (NYSE:KO) are almost never going to look cheap, evaluating them becomes quite a bit easier. With stocks like Coca-Cola, the reality is that investors view them as something almost like a hybrid of stock and bond, and so the valuation nearly always seems a bit stretched compared to other equities.

But as this quarter shows, Coca-Cola still has the ability to surprise to the upside. Decent volume growth helped to offset some price pressure and the company's progress on margin should reassure investors that management's long-term growth goals are attainable. So while these shares continue to look expensive by conventional valuation methodologies, and there does seem to be a general state of overvaluation in consumer-oriented stocks, the fundamental case for Coca-Cola remains pretty positive.

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Seeking Alpha: PepsiCo Looks Like A Relative Value In Its Sector

Investors have certainly been willing to pay more for the relatively predictable streams of earnings from packaged food companies recently, and that has left scant value in the sector. That PepsiCo (PEP) still seems to have some value in it is likely a product of the fact that not all analysts are completely sold on the idea that the benefits of the company's recent restructuring will last over the long term. While wasteful acquisitions and unsuccessful marketing initiatives may loom as ongoing threats, these shares do seem to over some relative value in the sector today.

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PepsiCo Looks Like A Relative Value In Its Sector

Seeking Alpha: Mondelez's Sugary Valuation Could Cause Wealth Decay

I can understand why investors like Mondelez (MDLZ). The company is not only #1 or #2 in most of its products and markets, but it has been deliberately assembled to address faster-growing markets in the larger packaged food industry. On top of that, this company has some of the highest exposure to emerging markets in the sector. Yet for all of those positives, I do think investors should be careful about what they pay, as expectations for this company are already pretty significant.

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Mondelez's Sugary Valuation Could Cause Wealth Decay

Investopedia: Coca-Cola's OK Results Won't KO The Stock

Coca-Cola (NYSE:KO) is pretty nearly bulletproof, so a so-so fourth quarter report and unexciting guidance won't likely change anything. For investors who like Coca-Cola, nothing has really changed about the long-term opportunities in selling sugar water to the world; and for the bears on Coca-Cola, the shares will still look pricey relative to the expected cash flow growth.

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Seeking Alpha: Amira Nature Foods Looks To Become A Major Emerging Market Brand

At first blush, Amira Nature Foods (ANFI) looks as though it may offer investors two relatively rare opportunities - a direct investment in India and an investment in a relatively early-stage food brand. While there are abundant risks with this name, this is also an uncommon opportunity. Investors may benefit not only from the rising consumer income levels in emerging markets, but also a food company that is at a point in its lifecycle where both revenue growth and margin leverage are up for grabs.

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Amira Nature Foods Looks To Become A Major Emerging Market Brand