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 in the country.

Results Performance for the Third Quarter Ended 26 September 2021 (Q3FY21)

• The net revenue stood at $64.63 million in Q3FY21, up 21.1% YoY, driven by the sustained rise in egg-related sales. The company has a network of family farms to ~250, retail distribution to ~18,000 stores, and ~5.5 million households for pasture-raised eggs.
• The gross profit stood at $19.9 million in Q3FY21 or 30.7% of net revenue driven by higher sales.
• Loss from operations stood at $1.8 million in Q3FY21, primarily due to higher costs associated with additional headcount to support growth and increased freight costs.
• Net loss stood at $1.33 million in Q3FY21.

Source: Company Reports, Analysis by Kalkine Group

Outlook

The management continues to assume no significant discrepancies in the supply chain or customers or consumers. As a result, for FY21, net revenue will be in the range of $253-$256 million, up 18-19% versus FY20, and adjusted EBITDA will be in the ambit of $8-$9 million.

Meanwhile, the capital expenditures stood at $14.2 million for the 39-weeks ended 26 September 2021, versus $6.7 million in the previous period. Broadly, the company is pleased with Q3FY21 revenue and a two-year CAGR of 37.7%. It plans to invest in business strategies to drive meaningful net revenue growth.

Key Risks

The company’s inability to launch new products may hurt its growth plans. Further, the performance depends on pasture-raised shell eggs, and any slowdown in these sales would negatively impact its financial condition. Volatility in commodity prices and the availability of feed grains could have a bearing on its results.

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

Stock Recommendation

The company has delivered a 6-month and 1-year return of ~-2.10% and ~-27.32%, respectively. The stock is trading lower than the average of the 52-week high price of $31.24 and the 52-week low price of $15.14.

The stock has been valued using an EV/Sales multiple based illustrative relative valuation method and arrived at a target price that reflects a low double-digit decline (in percentage terms). The company might trade at a slight discount to its peers’ average (NTM basis), considering a fall in asset turnover at 0.35x in Q3FY21 versus 0.42x in Q3FY20 and a longer Cash Conversion Cycle at 25.3 days in Q3FY21 versus 16.5 days in Q3FY20.

Considering the factors above, current trading levels, and the associated business risks, we advise the investors to book profits. Accordingly, we give a “Sell” rating on the stock at the closing market price of $20.03 per share, up 1.68% as of 17^th November 2021.

Technical Overview

Daily Price Chart

Source: REFINITIV, Note: Purple color line reflects Relative Strength Index (14-Period)

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.

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