GURU Organic Energy is better off without Pepsi, analyst says

Roth Analyst Brian McGowan says that GURU Organic Energy (GURU Organic Energy Stock Quote, Chart, News, Analysts, Financials TSX:GURU) faces limited downside and possible upside as its legal dispute with former distribution partner Pepsi plays out, maintaining a “Buy” rating and C$8.00 12-month price target.

McGowan noted that GURU and Pepsi have filed competing lawsuits in Ontario Superior Court, each alleging breaches of their distribution agreement, but he believes the financial risk to GURU is contained because the amounts Pepsi is seeking have already been reflected in the company’s financial statements. He said a win for GURU could provide meaningful upside, although any final resolution is likely still many quarters away unless the parties settle.

“We would conclude that the partnership did not produce the desired results for either party,” McGowan said in his April 21 update, adding that Pepsi informed GURU in November 2024 that it was ending the distribution agreement. Since returning to a direct-store-delivery network, he said GURU’s sales growth has accelerated, gross margins have recovered to the mid-60% range and the company has become profitable.

McGowan said the original Pepsi partnership, signed shortly after GURU went public, was expected to materially expand the company’s reach outside Quebec, but growth under the arrangement fell short of expectations. He noted that Canadian revenue growth slowed sharply during the partnership, while lower selling prices to Pepsi contributed to gross margins falling to 55.3% in 2024 from 63.5% in 2020.

He also pointed to Pepsi’s broader activity in energy drinks, including its distribution relationship with Celsius and its later role involving Alani Nu and Rockstar, as added context around the relationship.

According to McGowan, GURU’s lawsuit alleges Pepsi failed to provide fair share shelf space, withheld inventory during the transition period and forced GURU to repurchase it, and used information tied to GURU’s Island Breeze product before releasing a similar Rockstar product called Island Bliss. GURU is seeking $15-million in damages. Pepsi, for its part, is suing GURU for payments tied to advertising, marketing and trade spending, inventory repurchases and equipment storage.

McGowan said he believes GURU has already accounted for the costs tied to Pepsi’s claims through elevated payables, meaning even a Pepsi win would have negligible financial impact. By contrast, he said a GURU victory could be significant. He does not expect a resolution in calendar 2026 absent a settlement.

McGowan expects GURU to generate $2.0-million in Adjusted EBITDA on $41.3-million in revenue in fiscal 2026, improving to $3.3-million in Adjusted EBITDA on $47.9-million in revenue in fiscal 2027.

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