Vital Farms

VITL Details

Financial Results For Its First Quarter Ended 28^th March 2021

Vital Farms (NASDAQ: VITL), which is the Certified B Corporation, is in the business of offering the range of ethically produced pasture-raised foods nationwide. For the 3 months ended 28^th March 2021, net revenue witnessed a rise of 23% to $58.5 Mn in the Q1 FY 2021 as compared to $47.6 Mn in the Q1 FY 2020. Its gross profit stood at $21.3 Mn, or 36.4% of the net revenue, in the Q1 FY 2021, as compared to $15.9 Mn, or 33.3% of the net revenue, in the prior-year period. Notably, the rise in net revenue in Q1 FY 2021 was driven mainly by the volume increases to the distributors as well as retail partners. However, distribution gains in the new as well as existing customers also supported.

Q1 FY 2021 Highlights (Source: Company Reports)

Recent Update:

In the release dated 26^th April 2021, the company made an announcement about the appointment of Joanne Bal to the post of General Counsel, Corporate Secretary and Head of Environmental, Social and Governance (ESG).

Key Risks:

The company is exposed to the risks like failure to introduce new products. This could adversely impact its ability to grow. Also, fluctuations in the commodity prices as well as in the availability of feed grains have the potential to impact its operations as well as financials.

Outlook:

The company’s guidance is based on the assumption that there would be no additional, significant disruptions with regards to the supply chain, its customers or consumers, including any challenges from the broader macroeconomic environment. For the full fiscal year 2021, the company is anticipating that its net revenue could be in the range of $246 Mn to $253 Mn, representing a rise of 15%-18% as compared to FY 2020. The company’s forecast for adjusted EBITDA rose to the range of $7 Mn to $9 Mn as compared to the previous guidance of $6 Mn-$8 Mn.

Valuation Methodology: EV/Sales Based Relative Valuation (Illustrative)

Technical Overview:

Weekly Chart –

Source: REFINITIV

Note: Purple colour lines are Bollinger Bands® with the upper band suggesting overbought status while the lower band oversold status, and yellow lines are Fibonacci retracement lines which measure price rebound and backtrack. https://www.bollingerbands.com/

While broadly remaining in an underlying downtrend, the stock has given a weaker close but with a ‘Hammer’ formed on the weekly chart for the ongoing week, implying a potential bullish reversal for the trend. The technical indicator RSI with a reading around 40 suggests neutral momentum for the stock.

Going forward, the stock may have resistance around the 23.6% retracement level of $27.72 whereas support could be around the previous low of $18.98.

Stock Recommendation:

The company’s cash, cash equivalents as well as investment securities stood at $102.9 Mn as at 28^th March 2021 and the company had no current or long-term debt outstanding as of 28^th March 2021. Notably, net cash provided by the operating activities amounted to $8.0 Mn in the first quarter ended 28^th March 2021 as compared to $0.8 Mn of net cash provided by operating activities during the prior-year period.

We have applied EV/Sales multiple based relative valuation (on an illustrative basis) and the target price reflects a rise of low double-digit (in % terms). We have applied a slight premium to peer average EV/Sales multiple (NTM basis) considering better gross margin as well as ROE.

Thus, we give a “Buy” recommendation on the stock at the current market price of $21.18 per share, up by 2.37% on 16^th June 2021.

Note 1: The reference data in this report has been partly sourced from REFINITIV.

Note 2: Investment decisions should be made depending on the investors’ appetite on upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the analysis has been achieved and subject to the factors discussed above alongside support levels provided.

Technical Indicators Defined:-

Support: A level where-in the stock prices tend to find support if they are falling, and downtrend may take a pause backed by demand or buying interest.

Resistance: A level where-in the stock prices tend to find resistance when they are rising, and uptrend may take a pause due to profit booking or selling interest.

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