Jamba Inc. (JMBA) recently acquired Chicago-based Talbott Teas in its pursuit of continued innovation in its beverage line-up. The financial terms of the deal remained undisclosed. Talbott Teas will also be up for sale at Jamba Juice locations. Before acquiring Talbott Teas, Jamba had already tried various tea offerings such as Mightly Leaf, Original Spiced Chai and fruit tea infusion.
Founded in 2003, Talbott Teas is a premium tea company. It efficiently combines the finest natural and organic whole-leaf teas with fruits, flowers, herbs and spices. Talbott Teas tea blends are available in 23 customizable flavors. These attributes make the company a lucrative acquisition target.
Both companies focus on beverage. Both Jamba and Talbott Teas will derive synergies from this deal as they operate in the same vertical.
Beverages remain a sweet spot in the U.S. eateries. Jamba’s competitors primarily include sector behemoth Starbucks Corp. (SBUX) and McDonald’s Inc. (MCD), both of which specialize in frozen as well as hot beverages. McDonald’s has been delivering strong comparable sales in the U.S. buoyed by its McCafe line. Hence, we believe that the recent deal is in sync with Jamba’s strategy to provide impetus to its beverage line-up in order to withstand competitive pressure.
We believe Jamba is turning around at a slow but steady pace. While the company’s revenue is still lagging, indicating that it has a long way to go, Jamba is exploring every single opportunity to transform itself from a made-to-order smoothie retail chain to a healthy, active lifestyle brand by 2013. Hence, it is expanding its menu with a number of food and beverage items in an attempt to increase demand at off-peak dayparts.
Jamba currently retains a Zacks #2 Rank, which translates into a short-term Buy rating. We are also maintaining our long-term outperform recommendation on the stock.
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