Vital Farms Inc

VITL Details

Vital Farms Inc (NASDAQ: VITL) is one of the top U.S. brands of pasture-raised eggs and pasture-raised butter. It is also the second-largest egg brand in terms of retail dollar sales. The company sold its pasture-raised eggs and butter products across conventional and natural grocery stores and foodservice outlets across  the country.

 Q1FY21 Results Performance (For the Quarter Ended March 28, 2021)

Revenue grew by 23% YoY: The company has recorded net revenue growth of 23% to $58.5 million in Q1FY21 from $47.6 million in Q1FY20 driven by growth in volume to its distributors and retail partners along with the benefits of distribution gains in new and existing customers.

Higher Profitability: The company witnessed an increase in its gross profit to $21.3 million from $15.9 million in Q1FY20. Resultantly, net income increased to $3.5 million in Q1FY21 from $1.9 million in Q1FY20.

Consolidated Financial Snapshot (Source: Company Reports)

End of Partnership with Acosta Foodservice 

Following the move by Acosta on uniting of foodservice businesses of Acosta and The Core Group to create CORE Foods,  VITL has decided to end its partnership with Acosta Foodservice due to a competitive issue related to the particular merger. This was done after mutual consent with Acosta Foodservice. 

Bagged Awards

The company has recently, on June 16, 2021, bagged three industry awards from The Mindful Awards, Prevention Magazine, and the Specialty Food Association. It has been acknowledged as a “Best Breakfast” by the Prevention Magazine. It has also been acknowledged by the Specialty Food Association as the Silver winner in the “Breakfast Foods” category.

Outlook

The company remains confident of further increasing its household reach with its high-quality, pasture-raised products while assuming that there might not be significant disruptions to the supply chain, and the adverse impact of macro-economic developments on its customers. Meanwhile, VITL has guided of achieving net revenue in the range of $246 to $253 million in FY21, which reflects a growth of 15 to 18% over FY20. Further, it has increased its adjusted EBITDA guidance to a range of $7 to $9 million from its earlier guidance of $6 to $8 million.

Meanwhile, the company declared that it would  release its financial results for Q2FY21 on August 10, 2021.

Key Risks

The company’s inability to launch new products may hurt its growth plans. VITL’s performance is highly dependent on the sales of pasture-raised shell eggs and any slowdown in these sales would negatively impact its financial condition.

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

Technical Overview:

Chart:

Source: REFINITIV

Note: Purple Color Line Reflects RSI (14-Period)

Stock Recommendation

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 EV/Sales Multiple (NTM) (Peer Average) considering its sustained focus on store growth across the retail channel as well as accelerating household penetration and robust FY21 guidance. The stock fell by ~27.9% in 6 months. It has made a 52-week low and high of $17.85 and $43.2999, respectively.

Considering the aforementioned factors along with its healthy liquidity position and growth strategy, we give a “Speculative Buy” recommendation on the stock at the current market price of $18.99 per share, down by 0.05% on 23^rd July 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.

Stop-loss: It is a level to protect further losses in case of unfavourable movement in the stock prices.

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