Shares of Westrock Coffee Co (NASDAQ:WEST) came under pressure in early trading on Monday.
The company is well positioned for margin expansion with the build out of its new facility in Conway, Arkansas.
Truist Securities analyst Bill Chappell initiated coverage of Westrock Coffee with a Buy rating and price target of $10.
The Westrock Coffee Thesis: The new state-of-the-art facility specializes in manufacturing coffee-based ready-to-drink (RTD) beverages, Chappell said.
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American consumers like the convenience of ready-to-drink coffee beverages. That's why this has "proliferated in retail outlets over the past decade," Chappell said.
Westrock Coffee is the only "one-stop shop in the RTD industry with scale," Chappell added.
"We believe the existing customers have only dipped a toe in the water of what Westrock can offer," he further wrote.
Westrock Coffee's strategy of "moving into the value-add/packaged goods segment" enables "higher and more predictable margins for the company," Chappell said.
Extracts and RTDs can generate 4x to 5x of the margins generated by roast and ground coffee, the analyst added.
WEST Price Action: Shares of Westrock Coffee had declined by 5.55% to $5.62 at the time of publication on Monday.
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