Sodastream International Ltd (NASDAQ:SODA) has received a big downgrade from Barclays. In a report dated May 22, 2014, analysts David Kalan and Tavy Rosner said while they agree with management’s current strategy, they think the balance has shifted toward risk more heavily than it was before. They moved their rating from Equal Weight to Underweight and reduced their price target from $40 to $35 per share as a result.

Sodastream International

Sodastream sees high near-term risks

The Barclays team said they see big risks in execution and competition for Sodastream International Ltd (NASDAQ:SODA). They like management’s U.S. strategy, including placement of the company’s products at Wal-Mart Stores, Inc. (NYSE:WMT) over the summer. At this point though, they just see a higher likelihood of risk than of reward.

In fact, they see competitors as having less risk than Sodastream International Ltd (NASDAQ:SODA) and expect Sodastream to underperform competitors.

Too many moving parts for Sodastream

The analysts note that Sodastream International Ltd (NASDAQ:SODA) had weak first quarter results in the U.S., although the company saw strong results elsewhere, particularly Europe and Asia. They believe those two regions could drive an upside surprise to their estimates. However, they also see success in the U.S. as being a key part of the company’s long-term strategy, and it’s clear that Sodastream is struggling in the U.S.

Sales in the country declined 28% year over year and 52% quarter over quarter in the first quarter of this year. Sodastream International Ltd (NASDAQ:SODA) has said it will “add doors” in the U.S. over the next 18 months. It will also run some special product placements at Wal-Mart Stores, Inc. (NYSE:WMT) and possible launch some new products.

The Barclays team says all of these actions are positive, but they come with execution risk. In addition, Sodastream International Ltd (NASDAQ:SODA) partner KitchenAid and Cuisinart will be launching products. Also Keurig Green Mountain Inc (NASDAQ:GMCR), through its partnership with The Coca-Cola Company (NYSE:KO), will be rolling out new competing products as well. The analysts say while these competitors’ new products could validate Sodastream’s category, they could also pressure Sodastream’s pricing and margins.

Why Sodastream gets a downgrade

Barclays analysts note that Sodastream International Ltd (NASDAQ:SODA) saw a 22% increase in CO2 refills, which is a positive because of the high margins. However, sales of the company’s soda makers fell 22% year over year. They think if sales of the soda makers don’t “significantly improve” in the second half of this year, it would mean one of two things: either household penetration has stagnated or consumers are waiting until Keurig Green Mountain Inc (NASDAQ:GMRC) and The Coca-Cola Company (NYSE:KO)’s strategy is clearer.

They do say that if Sodastream International Ltd (NASDAQ:SODA) ends up merging or being acquired, then their downgrade would be at risk. There have been rumors that other companies are interested in Sodastream. Also if the company’s promotion at Wal-Mart Stores, Inc. (NYSE:WMT) proves successful, this could positively impact Sodastream heading into the holiday season. As a result, they think it’s possible the company could have some prominent positioning at more retailers right when sales of soda machines pick up in the second half of the year.