11-11-2024

Flowers Foods, Inc. (FLO - $21.44)
Rating: Outperform Price Target: $30
3Q24 Exceeds Forecast—Brands Outperforming Category—Margins Expansion Trending Positive—Maintain Outperform & $30PT

Investment Summary: We maintain our Outperform rating and $30 price target on the shares of Flowers Foods, Inc. (FLO). 3Q24 results exceeded our EBITDA and EPS estimates while sales were a slight miss (-1%) -- see Figure 1.  While branded sales performed well despite softness in the cake business, weaker QSR sales in the Other category caused overall sales to fall slightly. Margin expansion is a key part of FLO’s LT growth expectations and the company continues to make progress despite continued labor cost pressure. The AEBITDA margin was up 110bp YoY driven by a nicely improved gross margin (+120bp) aided by favorable ingredient/packaging costs, sales mix, and improved foodservice margins. SD&A costs were up slightly on continued workforce-related cost pressure. We expect FLO to maintain the positive gross margin trend on positive (branded) sales mix, moderately lower ingredient costs and improved foodservice margins due to the culling of lower margin customers. FLO’s brands continue to hold up well against private label and grew both dollar and units in the quarter despite an overall category decline. We are also encouraged by the share gains in FLO’s less penetrated geographic markets, a key driver of FLO’s long-term revenue growth.

11-08-2024

Prestige Consumer Healthcare, Inc. (PBH - $80.09)
Rating: Marketperform Price Target: $81
2Q25 In-Line—Estimates Largely Unchanged— Lower Rating to Marketperform on Valuation— Raise PT to $81

Investment Summary: We lower our rating to Marketperform and raise our price target to $81 (from $75) on the shares of Prestige Consumer Healthcare (PBH). Our neutral rating reflects the recent strength in the shares (+20% L3M) and an updated price target that is consistent with the current stock price. Our new and higher DCF-derived price target of $81 reflects a three-year sales and EPS CAGR of 2% and 7%, respectively, and consistent with its long-term growth algorithm — the forward EV/EBITDA multiple of 13.1x is almost two turns above its 5-year average of 11.4x.  We believe PBH shares could move higher on an attractive accretive acquisition for which PBH is due — and this would bump growth above its LT algorithm. However, we believe PBH remains committed to de-leveraging a bit more in the near-term. We also believe PBH could see some above-average growth in FY26 as Eye & Ear care moves past its supplier issues and categories like Women’s Health returns to stronger growth but anything more than an on-algorithm year is aggressive in our view. 

11-05-2024

UTZ Brands, Inc. (UTZ - $17.34)
Rating: Marketperform Price Target: $18
Solid 3Q24 Performance Despite Category Softness—Productivity and Expansion Markets to Drive ‘25—Maintain Marketperform/$18PT

Investment Summary: We maintain our Marketperform rating and $18 price target on the shares of Utz Brands, Inc. (UTZ). 3Q24 results were slightly ahead of our reduced expectations — see Figure 1— a high-quality quarter considering the macro consumer pressures and increased competitive activity, particularly in potato chips. Organic net sales growth of 1.9% and solid productivity-driven gross margin expansion (+270bp) drove 14% AEBITDA growth while lower interest expense (-$3M YoY) boosted EPS up 54%. We remain encouraged by the strength of UTZ’s four power brands which generated 4% volume growth in all channels driven by distribution gains. While the salty snack category remains flattish, we look for UTZ to deliver 4% organic net sales growth in Q4 from continued distribution gains in both core and expansion markets, increased marketing and On the Border and Bolder Canyon brand momentum. We expect UTZ will be able to outperform and gain share in the salty snack category given the sizeable white space in expansion markets and the ability to improve execution and add brands to its core markets.

11-05-2024

Mistras Group, Inc. (MG - $8.40)
Rating: Outperform Price Target: $16
3Q24 Improved YoY but Missed Estimates—2025 Outlook Remains Positive Driven by Margins—Maintain Outperform Rating and $16PT

Investment Summary: We reiterate our Outperform rating and $16 price target on the shares of Mistras Group (MG). After two consecutive quarters of better-than-expected earnings, MG’s 3Q24 results were below our forecast on both sales and margins — see Figure 1. Oil & Gas revenue was down 4% YoY with continued strength in the upstream business (+15% YoY) but the strong spring turnaround season seemed to have borrowed from the fall turnaround season and downstream revenue fell 12% YoY and midstream also fell 18%. Aerospace & Defense segment revenue had been delivering high teen revenue growth but 3Q24 was up “just” 9% as several projects were “pushed out” due to product/supply chain delays. On the positive side, while small, MG did see over-sized contributions from the Industrials, Power Generation and Other Process Industries segments. The EBITDA margins expanded by 10bp to 11.6% driven by a 40bp decrease in gross margin (sales mix) while SG&A leverage helped by 80bp.

11-04-2024

MGP Ingredients, Inc. (MGPI - $45.52)
Rating: Outperform Price Target: $80
Distilled Spirits Industry Shake Out in ‘25—Accelerates Shift to a Branded Spirits Pure Play—Maintain Outperform on Lower $80PT

Investment Summary: We maintain our Outperform rating and lower our price target to $80 (from $102) on the shares of MGP Ingredients (MGPI). 3Q24 results had been pre-announced on 10/17/24—see Figure 1—sales declined 24% (-14% ex-Atchison) on a 22% decline in brown goods, with exceptional weakness from craft customers that typically purchase the higher margin aged distillate. The industry has been completely caught off guard by the magnitude and speed of the post-pandemic demand mean reversion, very similar to how it looks and feels at the end of a bull market. The industry is going to go through a destabilizing period where distillers, distributors and retail operators will make significant changes to their operations which will play out in 2025 making for poor visibility.  It remains to be seen whether the U.S. whiskey market can return to its historical LSD growth rate in the intermediate term as weaker consumption trends attributed to unfavorable demographic trends, increased anti-alcohol rhetoric, growing cannabis use and GLP1s remain in place. We believe the bigger near-term issue is consumer liquor cabinet de-stocking and a macro consumer pushback on the elevated prices.  In the short-term, we see continued low-to-mid-single-digit consumption declines that we expect should dissipate in 2026.

11-04-2024

ChromaDex Corporation (CDXC - $5.68)
Rating: Outperform Price Target: $12
3Q24 Results Will Be Better Known As The Infection Point+ —Raise 2025 Estimates—Maintain Outperform Rating— Raise PT to $12

Investment Summary: We maintain our Outperform rating and raise our price target to $12 (from $9) on the shares of ChromaDex Corporation CDXC). 3Q24 had all the makings of an inflection point quarter—31% sales growth, expanded margins and record quarterly cash flow. Importantly, its core e-commerce business sales were up 17%, supported by improved Tru Niagen messaging and conversions along with a boost in consumer awareness of NAD+ infusions through increased media attention. Ingredient sales showed particular strength with food-grade sales up >300% and newly launched Niagen+ contributing an initial $0.9M.  EPS of $0.02 were $0.01 better than expected while AEBITDA of $2.9M vs. $0.5M was the highest level in its history and the sixth consecutive quarter of AEBITDA profitability. CDXC generated positive operating cash flow for the seventh consecutive quarter and increased its cash balance by $4.5M to $32.4M. Margins were strong with gross margin up 200bp YoY due to sales mix while G&A continues to fall as a percentage of sales. Sales and Marketing efficiency was flat YoY and up sequentially. Niagen+ was launched into 100 clinics in late 3Q and will be in a total of 300 clinics in 4Q which should accelerate sales sequentially.

11-01-2024

Fresh Del Monte Produce, Inc. (FDP - $32.11)
Rating: Outperform Price Target: $38
3Q24 Above Forecast on Fresh & Value Added Segment Growth—Raise Estimates—Maintain Outperform Rating —Raise PT to $38

Investment Summary: We maintain our Outperform rating and raise our price target to $38 (from $33) on the shares of Fresh Del Monte Produce, Inc. (FDP). 3Q24 adjusted EPS of $0.77 vs. $0.35 were well above our estimate due to strong margins in the Fresh & Value-added (FVA) segment. FVA sales were up 9% with continued improvement in the gross margin (+240bp) driven by strength in high margin products (pineapple, fresh-cut fruit, avocados). Banana revenue (-10% YoY) was weaker than expected due to competitive market conditions in North America and Europe and lower supply in Asia. The banana gross margin of 6.3%, while 200bp lower than last year, was still a solid performance considering the volume decline. The Other segment revenue rose 14% and had outsized margins. While the banana business is important to FDP as it absorbs and covers a lot of the fixed overhead, the FVA segment is the long-term growth driver of the business — 2Q24 began to provide a glimpse of the margin potential in this segment and 3Q24 results were equally encouraging. We expect continued gross margin improvement over the next several years driven by improved fixed cost leverage in its fresh cut facilities, stronger pineapple margins reflecting its new, innovative pineapple varieties and continued growth in higher margin products like avocados and non-tropical fruits. Management expects FVA margins have the potential to reach the low teens.

10-23-2024

MGP Ingredients, Inc. (MGPI - $57.50)
Rating: Outperform Price Target: $102
Lowering Estimates Due to Sales Outlook—Stock Decline Overdone —Maintain Outperform Rating on Lower $102PT

Investment Summary: We maintain our Outperform rating and lower our price target to $102 (fr. $119) on the shares of MGP Ingredients (MGPI). MGPI pre-announced disappointing 3Q24 results on 10/17/24 with sales expected to decline 24% (-14% ex-Atchison) on a 22% decline in brown goods, mostly due to weakness from craft customers that typically purchase the higher margin aged distillate. Branded Spirits sales are expected to fall 6% despite the premium plus segment up 1% while Ingredient Solutions sales will be down 18%. The primary issue is weaker distilled spirits industry consumption trends which have fallen 3% YTD compared to a LT growth rate of +3%. Industry participants suggest that a part of the recent weak consumption trends can be attributed to GLP1s, increasing cannabis use, and increased anti-alcohol rhetoric— but we believe the primary issue is mean-reversion spurred by consumer liquor cabinet de-stocking and consumer pushback on the elevated prices. Supplies of the sought after premium whiskey brands are more available causing consumers to stop hoarding and start drinking their own inventory. Meanwhile, there are clear signs of macro pressures on the consumer resulting in lower on-premise sales and downtrading to less expensive bottles. In the short-term, we see continued low-to-mid-single-digit consumption declines that we expect should dissipate in 2025. Investors have punished the stock (down >30%) on a downward outlook revision of about 10%. Clearly, investors are fearful of continued downward revisions and call out the new “management credibility” issues as reasons to sell the stock at <8.0x EBITDA. We believe the stock’s decline is significantly overdone and provides long-term investors a remarkably attractive entry point. The distilled spirits category has modest cycles and we remain confident that the LT industry growth will remain in 3% area over time. MGPI is advantage in the sense that its still a smaller player that can outgrow industry trends.

09-10-2024

Calavo Growers, Inc. (CVGW - $24.00)
Rating: Outperform Price Target: $35
3Q24 Results Beat Forecast on Higher Avocado Prices and Lower Tax Rate—Volumes to Improve in FY25 —Maintain Outperform/$35PT

Investment Summary: We maintain our Outperform rating and $35 price target on the shares of Calavo Growers, Inc. (CVGW). 3Q24 results (Figure 1) exceeded our sales and gross profit estimates by 6% due to strong avocado profitability.  Adjusted EPS of $0.57 vs. $0.42 was $0.25 above our estimate, aided by a lower tax rate (1.5% vs. 25.5% est.) that added $0.14/share to the earnings beat. Total sales were strong (+12% YoY) driven by a 13% increase in Grown revenue boosted by a 19% increase in avocado sales (volume down 5%, pricing up 25%) while tomato sales fell 31%. Weak volumes out of Mexico were offset by stronger (+50%) California volumes and higher pricing. Guacamole revenue fell 2% YoY and 9% below our estimate due to the anticipation of a large new customer in the quarter that is delayed into FY25. Gross profit declined 9% YoY due to weaker guacamole margins negatively affected by higher fruit costs. We estimate avocado profit per case was up 10% to $5.08/carton, above the high end of a normalized profit range of $3.00-4.00/carton aided by the 25% increase in avocado pricing that rose consistently in the quarter. Looking forward, we expect continued strong avocado margins in 4Q24 with flattish volumes driven by continued higher pricing. Volumes out of Mexico are expected to improve in 4Q24 and into FY25 following the weakness in 3Q. Guacamole profitability will likely improve due to lower fruit costs — the smaller fruit sizes used by the guacamole operations have fallen significantly. The investigation surrounding the Foreign Corrupt Practices Act (FCPA) in its Mexican operations remains ongoing but we still have no sense as to the potential costs and/or damages CVGW could incur though we think it will ultimately be immaterial. The sale of its RFG (fresh cut) closed on 8/15/24 and netted $75M. Including the $9M of debt repayment in 3Q24, the sale proceeds have been used to pay down all debt leaving the company with $43M in net cash. We expect CVGW to use its cash to grow its guacamole operations through acquisitions.

09-09-2024

UTZ Brands, Inc. (UTZ - $17.68)
Rating: Marketperform Price Target: $18
Adjusting 2024 Outlook Downward to Reflect Weaker Consumption Trends—Maintain Marketperform Rating and $18PT

Investment Summary: We maintain our Marketperform rating and $18 price target on the shares of Utz Brands, Inc. (UTZ).  We adjust our 3Q24 and 2024 estimates to reflect UTZ’s updated guidance issued on 9/5/24. UTZ lowered its organic sales growth outlook due to moderating consumption trends in 3Q and from a more competitive promotional environment driven by more value-conscious consumer behavior. The risk of weaker consumer spending trends has been obvious all year and believe the potential for weakness had been adequately reflected in the stock price. Our channel checks and consumer spending data point to the potential for continued consumption weakness into 4Q but UTZ has easier comps which should mute the impact. Along with anticipated cost and productivity savings, we expect UTZ will be able to mitigate the impact of higher promotional spending, particularly in 4Q.  We lower our 3Q24 organic sales growth estimate to 1.5% from 3.0% and lower our gross margin (-50bp) and AEBTIDA (-40bp) slightly to reflect less volume-driven margin leverage. We also adjusted our interest expense higher by $1.0M per quarter to reflect management’s guidance. All in, we lower our adjusted 3Q EPS estimate to $0.18 (from $0.20) and our full year 2024 EPS estimate to $0.71 (from $0.73).  We made no adjustments to 4Q other than raising interest expense by $1.0M and this did not affect our EPS estimate. We remain positive on UTZ’s three and five-year sales growth potential driven by the strength of its four power brands through continued distribution gains in both core and expansion markets. We continue to believe UTZ will be able to outperform and gain share in the salty snack category given the sizeable white space in expansion markets and the ability to improve execution and add brands to its core markets.

08-19-2024

Flowers Foods, Inc. (FLO - $22.71)
Rating: Outperform Price Target: $30
Solid 2Q24 Performance - Brands Outperforming Category - Gross Margin Highest in 3 Years - Maintain Outperform & 30PT

Investment Summary: We maintain our Outperform rating and $30 price target on the shares of Flowers Foods, Inc. (FLO). 2Q24 results exceeded our EPS estimate by $0.02 while revenue (flat) missed by 2% -- see Figure 1. The AEBITDA margin was up 90bp YoY driven by a nicely improved gross margin (+90bp) aided by favorable ingredient costs, sales mix, and improved foodservice margins. SD&A costs were flat with last year despite continued workforce-related cost pressure. We expect continued improvement in the gross margin on lower ingredient costs (mostly Q3) and improved foodservice margins due to the culling of lower margin customers. FLO’s brands continue to hold up well against private label and gained share in the quarter with particular strength in Dave’s Killer Bread (+7%) and Wonder (+10%). We are also encouraged by the share gains in FLO’s less penetrated geographic markets, a key driver of FLO’s long-term revenue growth. Guidance was maintained noting some caution relating to the health of the consumer and the potential for increased promotional activity later in the year. We raise our 2024 EPS estimate to $1.25 (from $1.23) to reflect the Q2 beat. We raise our 2025 EPS estimate to $1.37 (from $1.34) to reflect the extra week in the 2025 fiscal year — the extra week does not appear to be reflected in the current consensus forecast. While it’s difficult for investors to get excited about owning a company that is still going through a substantial transformation process producing below algorithm performances, we note that FLO is delivering solid top line results in a difficult consumer environment and this is the most difficult part of the execution equation.

08-09-2024

Prestige Consumer Healthcare, Inc. (PBH: $66.84)
Rating: Outperform Price Target: $75
1Q25 Better Than Expected Despite Supplier Issues—Raising Estimates— Maintain Outperform Rating— Raise PT to $75

Investment Summary: We maintain our Outperform rating and raise our price target to $75 (from $72) on the shares of Prestige Consumer Healthcare (PBH).  Expectations for lower Eye & Ear care revenue due to supply chain issues failed to materialize and were actually up 11% in the quarter due to expedited shipments late in the quarter. Despite higher airfreight expenses that trimmed the gross margin, adjusted EPS of $0.90 vs. $1.06 was $0.04 above our estimate on sales of $267M (-4% YoY) and $4M above forecast. The inability to fill orders in 4Q24 ($10M impact) were largely recovered in 1Q25 although we still expect some higher costs in 2Q25 as the supply chain normalizes.  The EBITDA margin fell 320bp YoY due to the lower gross margin (-70bp YoY) and the timing of A&M (+180bp) and G&A spending (+90bp).  We expect improvements in gross margin as well as A&M and G&A spending to end up in PBH’s historical ranges for the full year.  We raise our FY25 EPS estimate to $4.42 (from $4.33) to reflect the stronger Q1 and higher estimates in the remaining three quarters. We raise our FY26 EPS estimate to $4.70 (from $4.66), implied growth of 6% on 2% revenue growth.  PBH continues to de-lever its balance sheet (2.8x leverage) and look for continued declines to the 2.2x area by FY25 year end, absent any further share repurchases or and acquisition.

08-08-2024

ChromaDex Corporation (CDXC: $2.63)
Rating: Outperform Price Target: $9
Solid 2Q24 Results—Niagen+ is the Game Changer —Raise 2025 Estimates—Maintain Outperform Rating— Raise PT to $9

Investment Summary: We maintain our Outperform rating and raise our price target to $9 on the shares of ChromaDex Corporation CDXC). 2Q24 was a solid quarter against a tough comparison to last year with EPS and AEBITDA exceeding estimates on a slight revenue miss of $0.4M.  Revenue increased 12% YoY driven by strong Watsons and B2B sales (+23%), international growth (+111%) and ingredient sales (+24%). E-commerce was flat on a tough comparison to last year which incorporated the Amazon home page takeover which helped 1H23 results. EPS of $0.00 were $0.02 better than expected. AEBITDA was $1.6M vs. $0.3M, the highest level in its history and the fifth consecutive quarter of AEBITDA profitability. CDXC generated positive operating cash flow for the sixth consecutive quarter and increased its cash balance by $0.3M to $27.9M. Gross margin fell 50bp YoY due to sales mix while G&A continues to fall as a percentage of sales. Marketing efficiency fell 14% YoY against a tough comparison. 2024 revenue guidance was lowered to 10-15% growth (from at least 16%) due to delays in launching the new Niagen+ IV product. Despite the delays, we expect Niagen+ to be a significant game changer for CDXC. In the near-term, we expect CDXC’s superior product will allow it to capture the majority of the current NAD+IV market (~$25M to CDXC) and longer term as it provides healthcare practitioners with a more efficacious doses and delivery of NAD+, particularly against a backdrop of large disease states such as Parkinson’s and cardiovascular health.

08-05-2024

Fresh Del Monte Produce, Inc. (EDP: $27.27)
Rating: Outperform Price Target: $33
2Q24 Well Ahead of Forecast on Higher Margins—Raise Estimates—Maintain Outperform Rating —Raise PT to $33

Investment Summary: We maintain our Outperform rating and raise our price target to $33 (from $32) on the shares of Fresh Del Monte Produce, Inc. (FDP). 2Q24 adjusted EPS of $1.06 vs. $0.96 were double our estimate due to strong margins in the Fresh & Value-added (FVA) segment. FVA sales were up 2% with a record high segment margin of 11.4% (+220bp) driven by strong avocado and non-tropical fruit (mostly grapes). Banana revenue (-12% YoY) was weaker than expected due to competitive market conditions in North America and Europe — but the banana gross margin of 7.6%, while 370bp lower than last year, was still a solid performance in historical context. We believe the sales decline partly reflects FDP avoiding unprofitable volume. The Other segment revenue declined 5% largely consistent with our forecast. While the banana business is important to FDP as it absorbs and covers a lot of the fixed overhead, it’s the FVA segment that is the long-term growth driver of the business and 2Q24 began to provide a glimpse of the margin potential in this segment. The gross margin of 11.4% was the strongest we have seen and while we do not expect this margin to hold in 2H24, we expect continued improved over the next several years driven by improved fixed cost leverage in its fresh cut facilities, stronger pineapple margins reflecting its new, innovative pineapple varieties and continued growth in higher margin product like avocados and non-tropical fruits.

08-05-2024

UTZ Brands, Inc. (UTZ: $16.25)
Rating: Marketperform Price Target: $18
2Q24 Earnings Beat—Expansion Markets and Margins Drive Growth Despite Category Softness—Maintain Marketperform Rating/$18PT

Investment Summary: We maintain our Marketperform rating and $18 price target on the shares of Utz Brands, Inc. (UTZ). 2Q24 results exceeded our expectations on EPS and AEBITDA while sales were slightly below our forecast (see Figure 1). Organic net sales growth of 1.6% and solid productivity-driven gross margin expansion drove 10% AEBITDA growth while lower interest expense (-$5M YoY) pushed EPS up 45%. We expect similar trends in 2H24 with the primary risk being the potential for increased promotional activity which would mute gross margin gains. We remain encouraged by the strength of UTZ’s four power brands which generated 2.8% YoY sales growth in measured channels (category up 0.2%) and 6.9% growth in its expansion markets, although these growth rates are down from Q1 levels. While the salty snack category remains softer than normal, we look for UTZ to deliver higher organic net sales growth in Q3 (+3.0%) and additional strength in Q4 (+4.0%) driven by continued distribution gains in both core and expansion markets. We continue to believe UTZ will be able to outperform and gain share in the salty snack category given the sizeable white space in expansion markets and the ability to improve execution and add brands to its core markets. At the same time, UTZ has meaningfully improved its manufacturing and distribution efficiency potential through plant closures and consolidation which provides significant and easily attainable fixed cost leverage. The improved profitability enables UTZ to invest more behind its brands creating a potential for sustainable above category average sales growth.

08-02-2024

MGP Ingredients, Inc (MGPI: $86.09)
Rating: Outperform Price Target: $119
2Q24 Beats Forecast—Underappreciated Branded Spirits Margin Expansion Potential—Maintain Outperform Rating and $119PT

Investment Summary: We maintain our Outperform rating and $119 price target on the shares of MGP Ingredients (MGPI). 2Q24 results exceeded our forecast—see Figure 1— but more importantly, provided a glimpse into the long-term margin potential for the Branded Spirits segment which delivered an exceptional margin performance (52.5% GM +740bp) driven by the positive sales mix of its premium plus portfolio (48% of sales vs. 30% in 2021).  Branded Spirits revenue was up 11%, aided by the Penelope acquisition contribution but also strong performance across the portfolio from increased marketing support (17% of branded sales) and distribution expansion. Distilling Solutions sales were up 9% (ex-Atchison) driven by new distillate sales while margins expanded 1240bp due to the lack of Atchison.  New distillate drove the volume (+21%) offset by negative pricing mix given the higher new distillate sales as well as lower pricing from younger aged distillate sales compared to last year. Ingredient Solutions sales were down 3% YoY with specialty starches growing DDs. Margins remain down (-800bp) due to the waste stream cost drag but 2Q saw sequential improvement and will improve further as the mini fuel plant comes on line to commercialize the waste stream. We raise our 2024 EPS estimate to $6.20 (from $6.12) reflecting the 2Q beat and a slightly lower (-$0.05) 2H24 forecast. Our new 2025 EPS estimate is $7.54 (from $7.47). Looking forward, we have a high degree of confidence in a strong 2H performance from MGPI and believe 2Q demonstrated that MGPI’s distillery and branded businesses are able to outperform distilled spirits industry growth trends given its strategic position as a key industry distillate supplier as well as owning a portfolio of strong and growing whiskey brands

08-02-2024

Mistras Group, Inc. (MG: $10.13)
Rating: Outperform Price Target: $16
Solid 2Q24 Revenue Growth—Improving Margins—Momentum to Continue in 2H24—Maintain Outperform Rating—Raise PT to $16

Investment Summary: We reiterate our Outperform rating and raise our price target to $16 (from $15) on the shares of Mistras Group (MG). 2Q24 results beat our revenue, EBITDA and EPS forecast -- see Figure 1. Oil & Gas revenue was up 5% YoY with continued strength in the downstream business (+13%) due to the strong spring turnaround season. Aerospace & Defense segment has now strung together three robust quarters with 2Q24 up 18% as this segment has fully returned to growth mode and the momentum is expected to continue in 2H24 and beyond.  Margins expanded driven by a 130bp increase in gross margin while SG&A leverage helped by 200bp — positive sales mix (A&D) and operating leverage were the primary helpers. MG reiterated its 2024 guidance which is benefiting from improved contract management including higher contract pricing (+2-3%) and productivity savings. We raise our 2024 estimate to $0.76 (from $0.67) to reflect the higher Q2 and maintain our 2H24 estimates which call for greater than 70% growth. We maintain our 2025 EPS of $0.87, implied growth of 14%.  MG’s CEO search continues with the expectation of having a new CEO identified in 3Q24. We believe MG’s core businesses remain in good shape led by the Oil & Gas segment benefitting from stable energy pricing while the Aerospace segment has excellent visibility to continued double-digit growth and a long demand runway driven by commercial aerospace and private spaceflight. We remain constructive on MG’s longer-term revenue outlook as we expect the company to capture share of the fragmented $17B non-destructive testing (NDT) market through its new technology-enhanced products.

05-17-2024

Flowers Foods, Inc. (FLO: $25.49)
Rating: Outperform Price Target: $30
4Q24 Misses on Supplier Issues—FY25 Guidance Below Forecast— Maintain Outperform Rating— Lower PT to $72

Investment Summary: We maintain our Outperform rating and $30 price target on the shares of Flowers Foods, Inc. (FLO). 1Q24 results missed our EPS estimate slightly while revenue (+3%) was in line -- see Figure 1. The AEBITDA margin was up 30bp YoY driven by a nicely improved gross margin (+160bp) aided by favorable ingredient costs and branded sales improvement. SD&A costs remain stubbornly high (+140bp) as labor costs and investment spending remain elevated. We expect continued improvement in the gross margin as lower ingredient costs flow through and a moderating impact of stranded costs due to lower margin sales exits in the away-from-home channel. Interestingly, FLO has elevated its AFH business from a “maximize profitability” business to one with modest growth expectations. Historically, FLO has had difficulty improving total company margins due to the impact of lower margin private label and foodservice sales but efforts to cull low profit customers and its focus on higher profit volumes should begin to be more evident in 2024. FLO’s brands continue to hold up well against private label and gained share in the quarter with particular strength in Dave’s Killer Bread (+10%). Guidance was maintained noting some caution relating to the health of the consumer and the potential for increased promotional activity later in the year. We expect 2Q24 to look a lot like 1Q24 with potential upside from momentum in its branded volumes.  We maintain our 2024 and 2025 EPS estimates of $1.23 and $1.34, respectively. 

05-16-2024

Prestige Consumer Healthcare, Inc. (PBH: $66.46)
Rating: Outperform Price Target: $72
4Q24 Misses on Supplier Issues—FY25 Guidance Below Forecast— Maintain Outperform Rating— Lower PT to $72

Investment Summary: We maintain our Outperform rating and lower our price target to $72 (from $74) on the shares of Prestige Consumer Healthcare (PBH). Unexpected late-in-the-quarter supply chain issues in its eye care business caused 4Q sales and EPS to miss our forecast. Adjusted EPS of $1.02 vs. $1.07 was $0.12 below our estimate on sales of $277M (-3% YoY) and $12M or 4% below our estimate. The inability to fill orders hurt the quarter by roughly $10M in sales (~3%). As a result of the supply chain issues, the EBITDA margin fell 150bp YoY despite nice improvement in the gross margin (+100bp YoY).  PBH’s initial FY25 guidance was below our forecast due to the eye care supply constraints bleeding into 1H25. We lower our FY25 EPS estimate to $4.33 on flat sales growth ($1.127B). We establish a FY26 EPS estimate of $4.66, implied growth of 8% on 2% revenue growth.  FY25 is expected to be its second consecutive year of below LT algorithm type of growth due to the unexpected supplier issues, we believe the underlying growth rates and margins are tracking to long-term targets and the return to an on-algorithm year has been delayed to FY26. PBH has de-levered its balance sheet nicely to sub 3.0x leverage and look for continued declines to the 2.0x area by FY25 year end. We note that lower interest expense ($0.19/share) is the primary driver of EPS growth in FY25. We maintain our constructive view of PBH’s business model -- consumption growth is fairly predictable given that the portfolio is needs-based, has low private brand penetration and is channel agnostic.

05-09-2024

ChromaDex Corporation (CDXC: $3.83)
Rating: Outperform Price Target: $8
New Product Initiatives to Drive Growth in 2H24—Estimates Unchanged—Maintain Outperform Rating and Raise PT to $8

Investment Summary: We maintain our Outperform rating and raise our price target to $8 (from $7) on the shares of ChromaDex Corporation CDXC). 1Q24 was a good quarter against a tough comparison to last year. Revenue declined 2% YoY and was up 5% sequentially as the company did not repeat the Amazon home page takeover event in this year’s quarter. Core e-commerce revenue increased 6% facing the tough comp while Watsons revenue fell 19% against the launch of Tru Niagen Immune a year ago. AEBITDA of $0.7M was $0.1M better than expected and was the fifth consecutive quarter of positive operating cash flow. Gross margin improved on positive mix and supply chain optimization efforts while G&A continues to fall as a percentage of sales. Marketing efficiency was up 24% YoY and we expect continued and steady improvement in this metric. 2024 guidance was unchanged with revenue growth of at least 16% implying 23% YoY growth in the remaining three quarters. The acceleration is based on a significant new product launch in 2H24 with spending higher in 1H24 to support the launch. Delays to the launch is the biggest risk to our 2024 estimates although management was confident in its guidance suggesting decent visibility.

05-06-2024

UTZ Brands, Inc. (UTZ: $19.24)
Rating: Market-perform Price Target: $18
Solid Start to 2024—Expansion Markets and Productivity Gains Fuel Growth—Maintain Market-perform Rating—Raise PT to $18

Investment Summary: We maintain our Market-perform rating and raise our price target to $18 (from $17) on the shares of Utz Brands, Inc. (UTZ). 1Q24 results exceeded our expectations (see Figure 1) -- with 1.5% organic sales growth and solid productivity-driven gross margin expansion -- foreshadowing the type of results we expect in the remainder of 2024. We were encouraged by the strength of UTZ’s four power brands which generated 6.0% YoY sales growth in measured channels (4x the category) and 10.8% growth in expansion markets. We were also pleased to see strong productivity gains which will be a key margin driver going forward.  The reduction of its manufacturing facility network (down 50% to 8 plants) will generate steady fixed cost leverage as sales build and provide the opportunity to reduce redundant and inefficient warehouse inventories and other inefficiencies. The primary risks to 2024 will be pricing, particularly as the year progresses should consumers continue to balk at higher price points. The salty snack category volume trends are down LSD to start the year potentially leading to an increase in promotional activity driven more by retailer pressure than an irrational competitive environment. The good news for UTZ is the company is not solely dependent on the category for volume growth. Expansion market growth through increased distribution and item counts per store will be a meaningful driver for UTZ allowing it to exceed category growth and take share. The core markets have less opportunity for growth but given UTZ’s distribution power in these markets, we expect underpenetrated brands such as Zapp’s, OTB and Boulder Canyon to provide some energy to the core markets.

05-06-2024

Fresh Del Monte Produce, Inc (FDP: $24.52)
Rating: Outperform Price Target: $32
1Q24 Below Forecast on Lower Banana Profits—Pineapple Biz Performing Well—Lower Estimates—Maintain Outperform/$32PT

Investment Summary: We maintain our Outperform rating and $32 price target on the shares of Fresh Del Monte Produce, Inc. (FDP). 1Q24 adjusted EPS of $0.34 vs. $0.55 were $0.26 below our estimate due to lower banana revenue (-11% YoY) and lower margins (-440bp). Importantly, Fresh & Value-added (FVA) revenue was a strong performer with revenue up 5% and gross margin expansion of 50bp YoY. The Other segment revenue declined 14% but was largely in-line with our forecast. The banana business had several years of strong margins and the current quarter margin of 5.7% is in the normal historical range but pales in comparison to the outsized margin strength of recent years with the weakness attributed to lower prices and lower service levels in Europe along with a 5% consumption decline in North America. The FVA segment revenue was up 5% and matched expectations with strong gains in its core pineapple business (+9%), avocados (+23%) and melons (+17%). FVA margins were up 50bp YoY to 8.1%. FDP had no update on its review of strategic alternatives for its Mann Packing business (fresh cut vegetables) -- if sold, this would provide nice lift to FVA profitability. The Other category sales and gross profit were down due to lower commercial cargo revenue as a result of lower global freight prices and lower demand.

05-03-2024

Mistras Group, Inc. (MG: $9.24)
Rating: Outperform Price Target: $15
Strong 1Q24 Revenue Growth—Improved Revenue and Margin Visibility—Maintain Outperform Rating and $15PT

Investment Summary: We reiterate our Outperform rating and $15 price target on the shares of Mistras Group (MG). 1Q24 results missed our EPS estimate but beat our revenue forecast with its two key segments driving the growth -- see Figure 1. Oil & Gas revenue was up 13% with particular strength in the downstream business due to a strong spring turnaround season. Aerospace & Defense segment has strung together two strong quarters with 1Q24 up 19% as this segment looks like it has fully returned to growth mode.  Margins expanded mostly from SG&A leverage but gross margins also improved slightly despite the negative mix due to downstream strength. MG reiterated its 2024 guidance which is supported by the benefits of Project Phoenix -- approximately $20M of incremental cost savings in 2024. Along with cost savings, management expects to see a near 3% revenue contribution from strategic price increases. We lower our 2024 estimate to $0.67 (from $0.72) to reflect the lower Q1 and maintaining the remaining three quarters. We lower our 2025 EPS by $0.03 to $0.87.  MG interim CEO (long-time board member) Manny Stamatakis indicated that MG expects to have new CEO by 3Q24 and recently added Hani Hammad as Chief Transformation Officer - Mr. Hammad managed the Project Phoenix initiative while at Alix Partners. We believe MG’s core businesses remain in good shape led by the Oil & Gas segment benefitting from strong energy pricing and pent-up demand while the Aerospace segment has strong visibility to double-digit growth and a long demand runway.

05-03-2024

MGP Ingredients, Inc. (MGPI: $82.26)
Rating: Outperform Price Target: $119
1Q24 Beats Forecast—Compelling Value as Company Transforms to a Branded Spirits Business—Maintain Outperform Rating and $119PT

Investment Summary: We maintain our Outperform rating and $119 price target on the shares of MGP Ingredients (MGPI). 1Q24 results were expected to be down YoY on a tough comparison but still managed to exceed our forecast - see Figure 1. The Distilling Solutions segment’s difficult comp was driven by a strong 4Q in brown goods that pulled some demand forward and along with a decline in white goods sales from the closure of its Atchison distillery, this segment saw a 25% YoY decline but far better than we expected. Most importantly, brown goods (-3%) experienced strong new distillate sales which contributed to the 11% price/mix decline on solid volume growth of 8%. The temporary closure of its Lux Row distillery as part of its expansion project trimmed volume by 3%. Branded Spirits sales were down 12% YoY owing mostly to expected declines in the mid and value tiers -- the premium plus tier was up 12% and primary focus of this segment. Ingredient Solutions had a strong sales quarter (+15%) led by specialty wheat starches but margins fell as the company lost the inter-company waste stream credit from the Atchison distillery. Looking forward, we expect MGPI’s quarterly results to improve throughout the year with excellent visibility.

03-12-2024

Calavo Growers, Inc. (CVGW: $28.70)
Rating: Outperform Price Target: $35
1Q24 Results Missed on Lower Avocado Volumes—Expect Steady Improvement in FY24 —Maintain Outperform on Lower $35PT

Investment Summary: We maintain our Outperform rating and lower our price target to $35 (from $38) on the shares of Calavo Growers, Inc. (CVGW). 1Q24 results missed our sales and gross margin estimates in both the Grown (avocado) and Prepared (guacamole). On the sales side, lower avocado volume (-18%) stemming from one-time issues in Mexico was offset by higher pricing (+20%) leading to Grown revenue falling 4%. Gross profit fell 14% YoY due to the impact of lower volumes as well as lower tomato gross profit (-$1.1M).  We estimate avocado profit per case was up 24% to $2.35/carton but well below a normalized profit range of $3.00-4.00/carton. CVGW expects a meaningful improvement in gross profit per carton in 2Q24 due to improved volumes and the tomato business should see better performance. The guacamole sales were down 3% YoY with gross profit up 20% on lower avocado input costs. We expect the guacamole business to show strong growth throughout the remainder of FY24 as volumes pick up from new account growth and gross profit improvement from lower cost inventory. The investigation surrounding the Foreign Corrupt Practices Act (FCPA) in its Mexican operations remains ongoing although management is hopeful it can conclude soon but we still have no sense as to the potential costs and/or damages CVGW could incur. The sale of its RFG (fresh cut) business for $100M is slated to close on 3/31/24.  We expect CVGW to use the proceeds to repurchase stock and, over time, to grow its guacamole operations through acquisitions.

03-08-2024

Mitras Group, Inc. (MG: $8.93)
Rating: Outperform Price Target: $15
Continue to Expect Record Results in 2024—Lowering 2024 Outlook Slightly—Maintain Outperform Rating and Raise PT to $15

Investment Summary: We reiterate our Outperform rating and raise our price target to $15 (from $11) on the shares of Mistras Group (MG). 4Q23 results missed our EPS estimate but beat our revenue forecast -- see Figure 1.  Oil & Gas revenue was up 13% with all three subsegments growing, while Aerospace & Defense segment saw its first increase since 3Q22 as delays at a major contractor are over. Margins expanded on SG&A leverage. MG reiterated its 2024 guidance which is heavily influenced by the benefits of its Project Phoenix. MG indicated that Project Phoenix will deliver $20M of incremental cost savings in 2024, on top of the $9M in 2023. A significant portion of the cost savings is a 15% headcount reduction which should lead to SG&A falling to the 21% of sales level in 2024. Along with cost savings, management looks for an improved revenue outlook driven by new sales leadership, improved CRM tools and by simply executing allowable contracted price increases. We have made some fine-tuning adjustments to our 2024 estimate and lower our 2024 EPS estimate to $0.72 (fr. $0.82) to reflect a higher revenue estimate offset by a lower gross margin forecast. While we believe the gross margin can expand in 2024, we have taken a more conservative approach to start the year with a flattish gross margin. We establish a 2025 EPS of $0.90. 

03-04-2024

ChromaDex Corporation (CDXC: $1.74)
Rating: Outperform Price Target: $7
Solid Finish to 2023—2024 Guidance In-line with Forecast—Expect Momentum to Build—Maintain Outperform Rating and $7PT

Investment Summary: We maintain our Outperform rating and $7 price target on the shares of ChromaDex Corporation (CDXC). 4Q23 was a solid finish to the year with revenue up 12% (ex-upfront ingredient sales in 4Q22) driven by a 20% increase in its core e-commerce business. AEBITDA of $1.2M was $1.6M better than expected and was the fourth consecutive quarter of positive operating cash flow. Gross margin improved on positive mix and supply chain optimization efforts while G&A continues to fall as a percentage of sales. Marketing efficiency was up 14% YoY and we expect continued and steady improvement in this metric. 2024 guidance was largely consistent with our outlook with revenue growth of at least 16% (same rate as 2023) and a steady build expected throughout the year as the company launches a new product in 2H24. 1H24 spending will be higher to support the launch and the quarterly timing will be the biggest risk to our estimates.  2023 was a defining year for CDXC -- generating consistently positive cash flow and meeting or exceeding guidance in each quarter.

03-04-2024

Utz Brands, Inc. (UTZ: $17.52)
Rating: Market-perform Price Target: $17
Margin Expansion to Drive 2024 Growth Amidst Salty Snack Category Top Line Headwinds —Maintain Market-perform Rating and $17PT

Investment Summary: We maintain our Market-perform rating and $17 price target on the shares of Utz Brands, Inc. (UTZ). 4Q23 results were decent and largely as expected (see Figure 1) -- with flattish organic sales growth and solid productivity-driven gross margin expansion -- foreshadowing the type of results we expect in 2024.  The primary risks to 2024 will be pricing, particularly as the year progresses. The salty snack category volume trends are down LSD to start the year potentially leading to an increase in promotional activity driven more by retailer pressure than an irrational competitive environment. The good news for UTZ is the company is not solely dependent on the category for volume growth. Expansion markets grew 8% in 4Q23 compared to category growth of 3% and UTZ has ample opportunity to increase item count per store, and in the near-term, the Florida market should be a meaningful driver. The core markets have less opportunity for growth but given UTZ’s distribution power in these markets, we expect underpenetrated brands such as Zapp’s and Boulder Canyon to provide some energy to the core markets. Productivity savings will continue to support the SG&A spending, and in particular, an increase in advertising expense. 

02-27-2024

Fresh Del Monte Produce, Inc. (FDP: $23.18)
Rating: Outperform Price Target: $32
4Q23 Below Forecast—Banana & Pineapple Biz Performing Well—Our 2024 Outlook Largely Unchanged—Maintain Outperform/$32PT

Investment Summary: We maintain our Outperform rating and $32 price target on the shares of Fresh Del Monte Produce, Inc. (FDP). 4Q23 adjusted EPS of $0.25 vs. $0.45 were $0.07 below our estimate due to lower margins in the Fresh & Value-added and Other segments - see Figure 1. Banana segment margins (9.9%) were the highest we have seen in a 4Q and this limited the earnings miss. The banana margin for 2023 (10.0%) was the highest margin in over 12 years. While we expect continued above-average banana margins (7.9%) in 2024 as FDP maintains its focus on profitable volume growth, this conservative outlook and assumes 2024 banana margins decline 210bp YoY -- maybe overly conservative but the banana segment is notoriously tricky to forecast with little visibility. The European banana market was strong in 2023 and the primary driver of the improved margins. The Fresh & Value-added (FVA) segment revenue was up 1% and matched expectations with DD gains in pineapples, avocados and non-tropical fruit. FVA margins were down 320bp YoY and FDP is addressing this issue -- announcing it is looking at strategic alternatives for its Mann Packing business (fresh cut vegetables). Mann was acquired in 2018 for $357M generating over $500M in sales. Despite efforts to improve margins through a plant consolidation, a voluntary recall in 2019 and COVID disruptions have left revenue about $100M below levels when it was acquired and is a drag on profitability. A potential sale of Mann should provide a nice lift to FVA profitability. The Other category sales and gross profit were down due to lower commercial cargo revenue as a result of lower global freight prices and lower demand. We expect 2024 to show continued growth, particularly in the FVA segment driven by a strong pineapple performance (FDP’s core biz), improved avocado profitability and growth in fresh cut fruit.

02-23-2024

MGP Ingredients, Inc. (MGPI: $78.18)
Rating: Outperform Price Target: $119
4Q23 Exceeds Forecast—Stock Reaction Overblown—Maintain Outperform Rating—Lower Price Target to $119

Investment Summary: We maintain our Outperform rating and lower our price target to $119 (from $122) on the shares of MGP Ingredients (MGPI). 4Q23 results were strong and exceeded our forecast - see Figure 1. Brown goods continue to perform at a high level driven by a mix of new and aged distillate while Branded Spirits exceeded expectations with a 50% increase in the “premium plus” segment, aided by the sales of recently acquired Penelope. Sales mix was the key factor in the quarter, driving margins well ahead of our forecast. It seems investors were disappointed in the 2024 guidance, and a down Q1, which drove an unusually strong negative reaction despite the fact that guidance was largely consistent with consensus. MGPI stock has been weak over the past six months as investors grapple with a spirits category that is going through a post-pandemic hangover -- growth is softening as inventories at every level, including consumer pantry inventory, are going through a modest de-stocking phase. We believe the stock has over-reacted as the stock now trades at 9.2x forward EBITDA, or about one-third below its five-year average -- despite a business model that is far superior to the older MGPI model. MGPI continues its transformation process from a lower margin supplier of distillate to a large branded spirits producer that will have expanded margins, higher ROIC, increased visibility and more control of its own destiny.  We remain confident in MGPI’s robust growth drivers and continue to expect positive growth trends driving all three operating segments.

02-13-2024

Flowers Foods, Inc. (FLO: $22.61)
Rating: Outperform Price Target: $30
Transformation Continues in 2024—Brands Remain Strong—Upside to Estimates if Category is Rational—Maintain Outperform & $30PT

Investment Summary: We maintain our Outperform rating and $30 price target on the shares of Flowers Foods, Inc. (FLO). 4Q23 results were slightly below our forecast with revenue (+4%), AEBITDA (flat) and EPS (-11%).  The AEBITDA margin was pressured (-40bp to 8.5%) despite an improving gross margin (+110bp) due to significantly higher SD&A costs (+150bp). Gross margin has been aided by strong pricing (+5.6%) and offset by the impact of stranded costs due to lower margin sales exits. SD&A remains negatively affected by higher labor costs, marketing and technology spending. FLO’s brands continue to hold up well against private label and gained share in the quarter with particular strength in Dave’s Killer Bread (+10%). Initial 2024 guidance was slightly below our estimates -- revenue guidance calls for a flat to up 2% range while AEBITDA growth is expected in a range of +4% to +10% despite continued pressure higher ERP spending. However, in 2024, FLO is pausing ERP implementation to reallocate resources to the transition of approximately 400 California independent routes to a company-owned model as part of its recent legal settlement. FLO has covered 70% of its major raw materials for 2024 and we expect this to provide a nice tailwind all year. Overall, we expect a strong start to 2024 with the middle of the year posing tougher comparisons.

02-09-2024

Prestige Consumer Healthcare, Inc. (PBH: $69.88)
Rating: Outperform Price Target: $74
3Q24 Slightly Ahead of Estimate—4Q24 Guidance In-Line— Balance Sheet Strengthens—Maintain Outperform Rating— Raise PT to $74

Investment Summary: We maintain our Outperform rating and raise our price target to $74 (from $69) on the shares of Prestige Consumer Healthcare (PBH). 3Q24 exceeded expectations slightly with EPS of $1.06 vs. $1.04, a penny ahead of our estimate while revenue was in-line -- up 3% YoY. Once again, the quarterly results lacked surprises outside of some strength in the Eye Care, Women’s Health and international OTC categories. Margins were generally consistent with our expectations as an improved gross margin (+130bp YoY) and lower G&A (-40bp) helped offset higher A&M spending (+290bp) which led to a relatively normal EBITDA margin level of 33.4% (-120bp YoY).  We raise our FY24 EPS estimate $0.01 to $4.33 to reflect the stronger 3Q while keeping our 4Q outlook unchanged - consistent with the updated guidance. We raise our FY25 EPS estimates to $4.69 (from $4.62) to reflect some minor adjustments. FY24 has been a slightly below LT algorithm type of year with revenue expected to be up 1% (+2-3% ex FX and the private label exit) but below LT EPS growth targets as EPS growth of 3% compares to its longer-term range of 6-8% EPS growth. We expect FY25 to return to its LT targets as the strong FCF allows PBH to de-lever (projected leverage ratio of 2.0x by FY25 year-end) -- with lower interest expense boosting EPS growth. We maintain our constructive view of PBH’s business model -- consumption growth is fairly predictable given that the portfolio is needs-based, has low private brand penetration and is channel agnostic.

02-05-2024

Calavo Growers, Inc. (CVGW: $27.37)
Rating: Outperform Price Target: $38
Adjusting Estimates for Sale of RFG Business—Lowering PT to $38 to Reflect More Conservative Avocado Outlook—Maintain Outperform 

Investment Summary: We maintain our Outperform rating and lower our price target to $38 (from $41) on the shares of Calavo Growers, Inc. (CVGW). 4Q23 results were disappointing with both the Grown and Prepared segments missing our sales and gross margin estimates. Avocado margins were softer than expected as higher prices (+25% YoY) were offset by higher avocado costs (~+40% by our estimates) and we expect more of the same in 1Q25 (January) although with some modest improvement in margins. Prepared segment results were mixed with guacamole gross profit up 15% YoY while RFG profit fell 42%. CVGW indicated that its internal audit resulted in the company voluntarily contacting the DOJ and SEC regarding potential violations of the Foreign Corrupt Practices Act (FCPA) in its Mexican operations -- the investigation is ongoing and we have no sense as to the potential costs and/or damages CVGW could incur. There was no update to the sale of its RFG (fresh cut) business for $100M other than to say that it continues to work on completing the sale which is expected to close in the April quarter. To that end, we decided to adjust our estimates and forecasts assuming the transaction is completed at 2Q24-end under the current terms.

02-01-2024

02-01-2024

UTZ Brands, Inc. (UTZ : $17.70)
Rating: Marketperform Price Target: $17
Brand and Asset Sales Accelerate Supply Chain Savings and Lower Debt Levels—Raising PT to $17—Maintain Marketperform Rating

Investment Summary: We maintain our Marketperform rating and raise our price target to $17 (from $15) on the shares of Utz Brands, Inc. (UTZ). UTZ announced the disposition of its Good Health and R.W. Garcia brands and three manufacturing facilities which raises $183M in proceeds. The transaction is expected to close on 2/5/24. Along with the announced transaction, UTZ provided preliminary 4Q23 results that were slightly below our forecast and not meaningful in the big picture, in our view. 4Q23 sales are expected to be in the $350M to $354M range, flat to down 1% YoY, slightly below our $360M estimate, owing to a mix of lower-than-expected pricing and volume. Sales are expected to be up consistent with the category in 1Q24 which in the most recent data, suggests sales up in the 4-5% range. We will hear more when UTZ reports 4Q results on 2/29/24. UTZ expects net proceeds after tax will be in the $150M range and this will be used to repay debt and accelerate its goal of having a leverage ratio <3.0x by the end of 2025, essentially a year earlier than we had modeled. The lower term loan debt will cause interest expense to fall about $12M in 2024, offsetting the loss of operating profit from the sale of Good Health and R.W. Garcia. The transaction was obviously contemplated when UTZ provided its three-year financial goals in December but this transaction accelerates the leverage goals by a year and tangibly progresses the supply chain transformation which is critical in achieving its margin targets. We made some initial adjustments to our earnings model -- raising our 2024 EPS estimates and lowering our sales estimate to reflect the brand divestitures -- but will finalize our estimates once we have additional details on the economics of the divestitures, transition services agreement and quarterly timing.

01-17-2024

Calavo Growers, Inc. (CVGW: $29.05)
Rating: Outperform Price Target: $41
4Q23 Results Delayed Due to Internal Audit—Selling RFG Business—Returning to an Avocado Pure Play—Maintain Outperform and $41PT

Investment Summary: We maintain our Outperform rating and $41 price target on the shares of Calavo Growers, Inc. (CVGW). 4Q23 results have been delayed due to an extended internal audit focused on its Mexican operations that requires additional time to file its 10-K for FY23 (October).  CVGW indicated that it does not believe the matters under investigation affect previous financial statements. Along with the news of the delayed filing, CVGW provided preliminary revenue and gross profit results for FY23 -- revenue down 18% to $972M and a gross profit margin modestly below the nine-month margin of 7.5%. We back into 4Q revenue of $241M which is down 1% YoY with Grown segment revenue up about 1-2% and Prepared segment (RFG and guacamole) revenue down MSD YoY -- both results were below our forecast. We estimate gross profit in 4Q was $17M or 7.0% and below our forecast of 10.7%. The more important news in yesterday’s press release was news that CVGW has signed an agreement to sell its RFG business for approximately $100M with the deal anticipated to close in the April fiscal quarter.

12-18-2023

UTZ Brands, Inc. (UTZ: $14.61)
Rating: Marketperform Price Target: $15
Investor Day Takeaways—New LT Targets Are Consistent With Our Outlook—Maintain Marketperform Rating and $15PT

Investment Summary: We maintain our Marketperform rating and $15 price target on the shares of Utz Brands, Inc. (UTZ). We attended UTZ’s investor day on 12/15/23 and came away encouraged by the company’s new three-year financial goals although we note that these new goals were consistent with our forecast and embedded in our discounted cash flow analysis and $15 price target -- hence our neutral rating on the stock. While top line goals are often the biggest risk to consumer staples company forecasts, in UTZ’s case, we believe its organic sales forecast of 4-5% will be easier to hit -- and exceed -- than its 16% AEBITDA goal (+350bp from current levels). UTZ’s sales goals take a conservative view of the salty snack category growth -- 2-3% growth versus the historical average of 4-5%, assume modest share gains in expansion markets (+0.2 volume share pts/year) and hold the core market share flat. We believe the expansion market gains will be a source of upside to UTZ’s estimates and our forecast. On the margin side, our estimates share the company’s view of AEBITDA expansion to 16% but view this target more cautiously, particularly in terms of timing and likely to be more back-end weighted. That said, taking manufacturing facilities from 17 to 13 and adding packaging automation will drive throughput and fixed cost leverage which comprises the majority of the productivity goals and is relatively low hanging margin fruit. In the near-term, we expect a tougher top line environment in 2024 as the resilient salty snack category digests 9% pricing CAGR over the last three years and in the face of declining input costs.

11-13-2023

UTZ Brands, Inc. (UTZ: $12.26)
Rating: Marketperform Price Target: $15
3Q23 In Line—Lower 2023 & 2024 Outlook Slightly On More Cautious Sales Outlook—Maintain Marketperform Rating—Lower PT to $15

Investment Summary: We maintain our Marketperform rating and lower our price target to $15 (from $19) on the shares of Utz Brands, Inc. (UTZ).  Our lower price target reflects a higher WACC (higher risk-free rate) in our DCF valuation model. 3Q23 results were largely in line with revenue up 3% and AEBITDA growth up 6% (ex-SBC). The good news in the quarter was that Power brands (Utz, Zapps, OTB; ~75% of total) were up 5% (scanner data), offsetting weakness in its foundation brands which declined 9% due mostly to inefficiencies related to the closure of its Birmingham, AL facility and transition to the Hanover, PA plants. Further pressuring results was a slower salty snack category which remains sluggish as consumers shop for lower price points, private label and in discount channels. Margins improved slightly with AEBITDA margin of 13.0%, up 40bp YoY due to lower SD&A as gross margin fell 20bp due to independent owner/operator conversions hurting results by 60bp. UTZ lowered its 2023 revenue guidance to 2-3% (from 3-4%) due to lower volumes, however, AEBITDA guidance was unchanged at 8-11%. Looking at 2024, we expected a tougher top line environment given the outlook for a more pressured consumer, even in the resilient salty snack category. Our sales forecast of 2% growth looks conservative at this point but is positioned cautiously.

11-13-2023

Flowers Foods, Inc. (FLO: $20.63)
Rating: Outperform Price Target: $30
3Q23 In Line—Brands Remain Resilient—Lower 2024 Estimates—Maintain Outperform on Lower $30PT

Investment Summary: We maintain our Outperform rating and lower our price target to $30 (from $33) on the shares of Flowers Foods, Inc. (FLO). Our lower PT reflects a higher WACC (higher risk-free rate) in our DCF valuation model. 3Q23 results were consistent with our forecast, a tepid, but solid quarter with revenue (+4%), EBITDA (+1%) and EPS (-4%). considering the increasingly negative consumer environment. The AEBITDA margin was pressured (-30bp to 10.4%) despite a strong gross margin (+170bp) due to significantly higher SD&A costs (+200bp). FLO’s brands continue to hold up well against private label and held share in the quarter with particular strength in Dave’s Killer Bread and Wonder. Revenue guidance was lowered slightly (down 10-37bp) and still expected to increase 6% in 2023 while AEBITDA growth is expected in the -1% to +3% range including about 5% of pressure from ERP implementation. Elasticities are holding up favorably for its leading brands and FLO noted that all of the private label share gains remain in the mass channel and most of these sales are in the more commoditized subcategories (mostly white/wheat loaf). FLO remains in a strong position with Nature’s Own and Dave’s Killer Bread while Canyon Bakehouse’s capacity constraints are now behind them. We raise our 2023 EPS estimate to $1.24 (from $1.23) to reflect a higher 4Q estimate. We lower our 2024 EPS estimate to $1.31 (from $1.34).

11-08-2023

Prestige Consumer Healthcare, Inc. (PBH: $59.88)
Rating: Outperform Price Target: $69
2Q24 Exceeds Forecast—FY24 Guidance Unchanged— Maintain Outperform Rating— Lower PT to $69

Investment Summary: We maintain our Outperform rating and lower our price target to $69 (from $72) on the shares of Prestige Consumer Healthcare (PBH). Our lower PT reflects a higher WACC in our DCF calculation caused by a higher risk-free interest rate. 2Q24 exceeded EPS expectations by $0.02/sh. while revenue was in-line -- flat versus a tough comparison.  In terms of surprises, this quarter did not really have any and the outlook also lacked surprises. Revenue fell 1% to $286M with a 1% headwind from FX and 1% headwind from the exit of its private label business. Cough and Cold and Eye Car segments had nice growth (see Figure 2) while Women’s Health and Oral Care underperformed. Once again, lower A&M spending (-110bp) was the primary driver of the 150bp increase in EBITDA margin (33.5%). Gross margin improved 20bp YoY and continues its march back to pre-inflationary levels while G&A was down 10bp. We raise our FY24 EPS estimate $0.01 to $4.32 to reflect the stronger 2Q, a slightly lower 3Q and higher 4Q.  We lower our FY25 EPS estimates to $4.62 (from $4.66) to reflect some modest changes. PBH reiterated its FY24 guidance which implies reaching its long-term organic revenue growth range of 2-3% (excluding FX and the private label exit) but a slightly below algorithm year for EPS of 3% growth compared to its longer-term range of 6-8% EPS growth. FCF remains strong and we expect PBH to continue to de-lever with a projected leverage ratio of 2.7x by FY24 year end -- currently at 3.2x (3.0x based on bank definition). We maintain our constructive view of PBH’s business model -- consumption growth is fairly predictable given that the portfolio is needs-based, has low private brand penetration and is channel agnostic. Couple the predictable longer-term sales trends with stable (and high) margins and modest capital needs and PBH delivers consistently strong FCF to redeploy in M&A and share repurchases. Our new $69PT is derived from our updated DCF analysis implying a forward EV/EBITDA multiple of 11.8x (5-yr avg. 11.1x).

11-08-2023

MGP Ingredients, Inc. (MGPI: $97.28)
Rating: Outperform Price Target: $122
3Q23 Exceeds Forecast—Raising Estimates—Maintain Outperform Rating—Lower Price Target to $122

Investment Summary: We maintain our Outperform rating and lower our price target to $122 (from $130) on the shares of MGP Ingredients (MGPI). Our lower price target reflects higher interest rates that increased the WACC in our DCF calculation. CEO David Colo announced his retirement on 12/31/23 and COO David Bratcher will succeed him. 3Q23 results were strong and exceeded our forecast - see Figure 1. Brown goods continue to be the standout performer in both the Distilling Solutions and Branded Spirits segments. Once again, sales mix was the key factor in the quarter, driving margins well ahead of our forecast. In the Distillery segment, brown goods sales were up 28% YoY yielding a 590bp gross margin improvement to 34.7% of sales, aided by the decline in white goods as MGPI prepares to close its Atchison, KS distillery. Branded Spirits sales were up 6% YoY but the premium-plus segment generated 33% sales growth driving a 350bp margin improvement -- aided by the first full quarter of its newly acquired Penelope bourbon brand.  Ingredient Solutions generated another record high gross margin of 33.8% driven by mix. We remain confident in MGPI’s robust growth drivers and believe the positive growth trends driving all three operating segments have meaningful headroom. The American whiskey industry supply shortage will remain for several years, particularly for longer aged product, and believe pricing and margins for MGPI’s aged inventory will remain favorable. The tighter supplies have caused customers to commit to purchases on a longer term basis leading to MGPI having the vast majority of its new and aged distillate sales already committed for 2024.

11-06-2023

Mistras Group, Inc. (MG: $5.94)
Rating: Outperform Price Target: $11
3Q23 Slight Beat—Project Phoenix to Drive Record Results in 2024—Raising 2024 Outlook—Maintain Outperform and $11PT

Investment Summary: We reiterate our Outperform rating and $11 price target on the shares of Mistras Group (MG). 3Q23 results were largely in line with adjusted EPS of $0.18 vs. $0.15 ($0.01 ahead of our estimate) and revenue of $179M (+1%) and 3% below our forecast. Within the quarter, Oil & Gas revenue was up 6% with all three subsegments growing, while Aerospace & Defense segment fell 6% due to lower defense revenue related to continued delays at a major contractor. The more important development was MG’s update on Project Phoenix. MG indicated that Project Phoenix will deliver $21M of incremental cost savings in 2024, on top of the $9M in 2023. A significant portion of the cost savings is a 15% headcount reduction which should lead to SG&A falling to the 20% of sales level in 2024. As a result, we increase our 2024 EPS estimate to $0.82 (from $0.64). Our new EBITDA estimate is $84M (excludes share-based comp add back) and relatively consistent with MG’s guidance of at least $88M in AEBITDA.  While MG lowered 2023 guidance, we note that our estimates were consistent with the updated guidance and we are maintaining our 4Q23 EPS estimate of $0.17 vs. $0.09 on revenue of $177M.  MG interim CEO and long-time board member, Manny Stamatakis indicated that MG has commenced on its search for a new CEO but in the meantime, Project Phoenix is well underway and unaffected by the lack of a permanent CEO. 

11-03-2023

Fresh Del Monte Produce, Inc. (FDP: $22.75)
Rating: Outperform Price Target: $32
In-line 3Q23 Driven by Strong Banana Margins—Fresh & Value-Added Segment Sluggish —Maintain Outperform on Lower $32PT

Investment Summary: We maintain our Outperform rating and lower our price target to $32 (from $35) on the shares of Fresh Del Monte Produce, Inc. (FDP). Our lower price target primarily reflects a higher weighted average cost of capital (WACC) in our DCF calculation. 3Q23 adjusted EPS of $0.35 vs. $0.51 were $0.02 below our estimate which is pretty close to “in-line” for FDP. This was another strong quarter for banana segment gross margin (+250bp YoY) which will likely have its third consecutive year of above-average banana margins, however LSD volumes declines remain lower than expected. Banana margins have benefited from improved field efficiencies, asset leverage and improved execution in managing banana supplies and a focus only on profitable volume contracts. FDP remains unsure as to why banana volumes remain at a LSD decline pace in the U.S. -- we see no reason nor do we expect any change in the longer-term rate of U.S. banana consumption. The Fresh & Value-added segment revenue declined 4% and was below expectations due to weakness across the board with the exception of avocados that are beginning to show a turnaround after a disruptive supply environment over the past year. A softer segment gross margin (-140bp YoY) was largely expected given higher fruit costs, lower volumes and FX headwinds.

09-07-2023

Calavo Growers, Inc. (CVGW $31.26)
Rating: Outperform Price Target: $41
3Q23 Beats on Strong Avocado Margins—Raising Estimates on Improved Margins—Maintain Outperform—Raise PT to $41 

Investment Summary: We maintain our Outperform rating and raise our price target to $41 (from $38) on the shares of Calavo Growers, Inc. (CVGW). 3Q23 EPS exceeded our estimate ($0.41 vs. $0.23 est.) on stronger avocado margins (14.8% vs. 9.0%) while sales missed our forecast ($260M vs. $266M) due to lower Prepared revenue. The good news in the quarter was avocado profit per carton improved markedly ($6.40 vs. $3.75) and well above the high end of its historical $3.00-$4.00/carton range. The outsized profitability was driven by the sharply higher avocado prices in late June allowing CVGW to sell its lower cost fruit at higher prices. While we expect avocado carton profit to remain above the historical range, we expect more modest YoY improvement in 4Q23 at $4.50/carton.  Avocado volume was up 5%, but below the industry growth of 10%, more a reflection of CVGW participating in higher profit segments. The Prepared segment was below forecast but the fresh-cut segment (RFG) should see significant growth in the 4Q with a large new customer and meaningfully higher margins on improved produce procurement and fixed cost leverage, this despite lower volumes due to consumer spending weakness in the produce category. The guacamole business improved in the quarter and expect more normal margins in 4Q as lower fruit costs boost gross profit. We remain constructive on CVGW and the return of CEO Lee Cole seems to have helped revert the avocado business back to historical performance measures. The avocado category remains one of the fastest growing produce categories and expect it to return to historical profit margins.

08-14-2023

Flowers Foods, Inc. (FLO $25.82)
Rating: Outperform Price Target: $33
2Q23 Beat on Stronger Branded Revenue—Raise 2023 and 2024 Estimates—Maintain Outperform and $33PT

Investment Summary: We maintain our Outperform rating and $33 price target on the shares of Flowers Foods, Inc. (FLO). 2Q23 results were a sharp reversal from 1Q23 with revenue, AEBITDA and EPS all exceeding our forecast. Higher pricing and positive revenue mix (branded) led to a 90bp increase in gross margin driving the AEBTIDA strength. FLO raised the lower end of its 2023 guidance range with sales growth still expected to increase in the 6-7% range. Due to gross margin pressure and higher operating costs related to its ERP upgrade and digital initiatives, EPS growth is expected to decline 2-7% while AEBITDA is now expected to be flat to up 5%. Despite the continued strong price/mix gains (price/mix +13.3%), elasticities are holding up favorably for its leading brands. All of the private label share gains remain in the mass channel and most of these sales are in the more commoditized subcategories (mostly white/wheat loaf). We maintain our view that consumers increasingly prefer higher quality and higher value-added breads that store brands do not offer and to this end, FLO remains in a strong position with Nature’s Own and Dave’s Killer Bread maintained or grew unit share in the quarter while Canyon Bakehouse lost share due to capacity constraints that are being addressed. We raise our 2023 EPS estimate to $1.23 (from $1.20) to reflect the 2Q beat and a slightly more cautious forecast for 4Q. We raise our 2024 EPS estimate to $1.34 (from $1.33).

08-10-2023

ChromaDex Corporation (CDXC $1.65)
Rating: Outperform Price Target: $8
2Q23 Results Exceed Estimates—Upped Revenue Guidance to 15%+ That Still Looks Beatable—Maintain Outperform Rating and $8PT

Investment Summary: We maintain our Outperform rating and $8 price target on the shares of ChromaDex Corporation (CDXC). 2Q23 results exceeded revenue estimates for the second consecutive quarter and delivered positive AEBITDA while increasing its cash balance. EPS loss of ($0.03) was as in-line despite modest one-time G&A expenses and revenue growth of 21% was 7% above our forecast buoyed by strong growth from Watsons (+100%), ingredient sales (+71%) and e-commerce sales (+8%). Most importantly, AEBITDA was $0.5M vs. ($4.6M) and demonstrates the company’s focus on delivering sustainable and disciplined profit growth. Improved marketing efficiencies and lower customer acquisition costs are a key driver of sustainable profitability and expect continued improvement in A&M effectiveness. 2023 revenue guidance was raised to 15% growth or better and we continue to look for sales guidance to be exceeded meaningfully through improved marketing and conversion rates, new customers (i.e. iHerb), growth from Watsons as Hong Kong continues to normalize and contributions from Nestle and international partners that had been set back during the pandemic. Most importantly, we estimate 2023 full year AEBITDA will be positive ($1.0M).

08-08-2023

MGP Ingredients, Inc. (MGP $122.55)
Rating: Outperform Price Target: $130
2Q23 Exceeds Forecast—Raising Estimates—Improving 2024 Visibility—Maintain Outperform Rating—Raise Price Target to $130

Investment Summary: We maintain our Outperform rating and raise our price target to $130 (from $120) on the shares of MGP Ingredients (MGPI). 2Q23 results were strong and exceeded our forecast - see Figure 1. Sales mix was the key factor in the quarter, driving margins well ahead of our forecast. In the Distillery segment, brown goods sales were up 30% YoY yielding a 530bp gross margin improvement to 33.1% of sales, its highest margin in five quarters. Brand Spirits sales were down 2% YoY due to the distributor change in 1Q23 affecting the mid and value tier brands, but the premium-plus segment generated 29% sales growth driving a 930bp margin improvement. Ingredient Solutions generated a record high gross margin of 33.6% driven by lower cost inventory. We remain confident in MGPI’s robust growth drivers and believe the positive growth trends driving all three operating segments have meaningful headroom. The American whiskey industry supply shortage will remain for several years, particularly for longer aged product, and believe pricing and margins for MGPI’s aged inventory will remain favorable.

08-04-2023

Mistras Group, Inc. (MG $6.12)
Rating: Outperform Price Target: $11
2Q23 Revenue & EPS Miss Estimates—Lower 2023 Estimate—Maintain Outperform—Lower PT to $11

Investment Summary: We reiterate our Outperform rating and lower our price target to $11 (from $13) on the shares of Mistras Group (MG). 2Q23 results fell short of our expectations with most of the miss coming in the defense and power generation segments. Surprisingly, the Oil & Gas segment (+3% YoY), which is typically the culprit when MG misses estimates, had a solid quarter and continued to show steady improvement with upstream (+10%), downstream (+2%), and midstream segment (+1%). Favorable energy prices continue to be in a sweet spot and drives a more normal environment for MG’s NDT services. Aerospace & Defense segment is a tale of two segments -- Aerospace was up nicely but the Defense segment continues to be plagued by supply chain and other assorted delays at a major defense contractor. Management continues to expect it will take a couple more years to fully unwind the pent up demand in the A&D segment due to the supply chain inefficiencies. 2023 guidance was lowered to reflect the soft 2Q23 -- sales up 2% to 5% and EBITDA expected to rise 17% to 22%. We lower our 2023 EPS estimate to $0.27 (from $0.45) owing mostly to the lower 2Q. We believe MG’s core businesses continue to improve although the myriad of business lines always seems to have one or two revenue hiccups MG has to deal with every quarter. That said, the Oil & Gas segment is benefitting from strong pricing and pent-up demand and once the defense business normalizes, we believe HSD growth in the Aerospace & Defense segment is a reasonable 2H target.

08-04-2023

Prestige Consumer Healthcare, Inc. (PBH $66.52)
Rating: Outperform Price Target: $72
1Q24 Exceeds Forecast—FY24 Guidance Unchanged— Maintain Outperform Rating— Raise PT to $72

Investment Summary: We maintain our Outperform rating and raise our price target to $72 (from $69) on the shares of Prestige Consumer Healthcare (PBH). 1Q24 exceeded EPS expectations by $0.02/sh (excluding a $0.02/sh. tax benefit) but it was a difficult comp on the gross margin front which caused EPS to decline 3% YoY. Revenue increased 1% (+2% ex FX) and 1% below our forecast. Once again, lower A&M spending (-140bp) helped offset a lower gross margin (-240bp). Gross margin improved 160bp sequentially as the company is beginning to recoup the inflationary costs.  Strong sales growth in dermatological (+18%) and gastrointestinal (+6%) categories was offset by continued softness in the women’s health category. We expect PBH to launch new women’s health products (Summer’s Eve) and commit more A&M resources to its product lines in 2H24. We maintain our FY24 and FY25 EPS estimates $4.31 and $4.66, respectively. PBH reiterated its FY24 guidance which implies reaching its long-term organic revenue growth range of 2-3% but a slightly below algorithm year for EPS of 3% growth compared to its longer-term range of 6-8% EPS growth. FCF remains strong and we expect PBH to continue to de-lever with a leverage ratio of 2.7x by FY24 year end. We maintain our constructive view of PBH’s business model -- consumption growth is fairly predictable given that the portfolio is needs-based, has low private brand penetration and is channel agnostic.

08-03-2023

Fresh Del Monte Produce, Inc. (FDP $27.70)
Rating: Outperform Price Target: $35
Strong 2Q23 Earnings Beat Driven by Improved Margins—Raising Estimates—Maintain Outperform and $35PT

Investment Summary: We maintain our Outperform rating and $35 price target on the shares of Fresh Del Monte Produce, Inc. (FDP). 2Q23 adjusted EPS of $0.96 were $0.43 above expectations driven by a conservative forecast and outsized margin improvement in the Banana segment and solid gains in the Fresh & Value-added segment. The Banana segment benefitted from better than expected selling prices and higher volumes in the seasonally strongest quarter of the year in this business. It was also the highest 2Q banana margin since 2017.  Fresh & Value-added sales were lower than expected (-7% YoY) due to avocado pricing weakness, lower non-tropical fruit revenue, offset by strength in pineapples, fresh-cut fruit, vegetables, and melons. Lower avocado prices (down ~40%) hurt the sales line but volumes were up (~+10%) which allowed avocado profits to rise. The Other category was down 7% YoY due to lower commercial cargo revenue as a result of lower global freight prices. Looking forward, the banana segment outlook remains stable with supply and demand in balance but 3Q is a seasonally weak quarter for bananas and we lower our margin forecast in an effort to keep our estimates conservative. The Fresh & Value-added segment outlook is improving, particularly on the margin side as the company focuses on profitable volume growth while aided by higher margin product lines such as pineapples. FDP continues to divest low-yielding assets and raised proceeds of $97M in 2Q which it used to pay down debt -- net debt of $384M is down $53M sequentially.

06-15-2023

UTZ Brands, Inc. (UTZ $16.32)
Rating: Marketperform Price Target: $19
Adjusting Quarterly Estimates - 2023 & 2024 Estimates Unchanged— Maintain Marketperform Rating and $19PT

Investment Summary: We maintain our Marketperform rating and $19PT on the shares of Utz Brands, Inc. (UTZ). We have fine-tuned our quarterly estimates for 2023, adjusting our revenue and EBITDA growth cadence with a slightly slower Q2 and Q3 and stronger Q4. We maintain our view that UTZ’s 2023 will be a year on a glidepath to improved gross margins through higher selling prices, easing input costs and increasing productivity gains, ultimately the primary driver of margin expansion. Volume growth remains challenged, in part due to SKU rationalization and the culling of private label and third-party brands, but we are also increasingly cautious on consumer spending over the next 12 months despite favorable elasticity performance so far. While the salty snack category performs solidly during more difficult consumer spending environments, we still believe the recent level of consumer staples price inflation is becoming harder to digest and is risk that ought to be considered in volume and margin forecasts. Our neutral rating on the shares is largely valuation-driven -- our DCF-derived $19PT implies a 12-month forward EV/EBITDA (’24e) multiple of 18.5x which is admittedly an aggressive level, particularly in light of the elevated balance sheet leverage. We believe the stock could justify a higher multiple if volume growth accelerates on back of strong expansion market gains along with an expanding gross margin.

06-07-2023

Calavo Growers, Inc. (CVGW $33.02)
Rating: Outperform Price Target: $38
2Q23 Misses Forecast—Avocado Margins Improving—Lower FY23 Estimates—Raise FY24 Outlook—Raise PT to $38

Investment Summary: We maintain our Outperform rating and raise our price target to $38 (from $36) on the shares of Calavo Growers, Inc. (CVGW). 2Q23 results missed our estimates as better-than-expected avocado (Grown segment) revenue (-33% YoY) and gross profit (-14% YoY) exceeded our forecast while the Prepared segment missed due to lower guacamole and fresh-cut volumes. The good news in the quarter was avocado profit per carton improved sequentially ($3.22 vs. $2.66) and profitability has improved further in 3Q23, currently at the high end of its historical $3.00-$4.00/carton range. We expect to see continued improvement in the Grown segment in 2H23 as avocado pricing stabilizes and volumes remain up near 10%. The bad news in the quarter was that despite improvement in the guacamole business, the RFG segment continues to struggle with lower volumes due to customer losses and consumer spending weakness in the produce category. CVGW noted that it expects to onboard several meaningful new RFG customers in the 2H23 and it expects to regain some of the lost fresh-cut business in 4Q. All in, we remain constructive on CVGW and expect the return of CEO Lee Cole will revert the avocado business back to historical performance measures. The avocado category remains one of the fastest growing produce categories and look for stronger profitability as this market stabilizes. The Prepared segment has more to overcome in the near-term due to consumer spending weakness but new customer growth in 2H23 and improved cost structure should lead to better results although below our original forecast.

05-22-2023

Flowers Foods, Inc. (FLO $25.99)
Rating: Outperform Price Target: $33
1Q23 Weaker Than Expected From Effects of Shift to Store Brands—Lower 2023 and 2024 Estimates—Maintain Outperform and $33PT

Investment Summary: We lower our 2023 EPS estimate to $1.20 (from $1.27) to reflect the 1Q miss and a slightly more cautious forecast for 2Q and 3Q. We lower our 2024 EPS estimate to $1.33 (from $1.38) that reflects mostly higher interest expense. While 2023 will be a “below algorithm” year for FLO we continue to believe FLO’s long-term targets — sales growth of 1-2%, EBITDA growth of 4-6% and EPS growth of 7-9% — are realistic and achievable, with M&A an incremental source of growth. We remain positive on the stock based on FLO’s ability to deliver above-average revenue growth over the longer-term driven by market share gains in new territories, above-average population growth in its strongest territories, growth of its leading organic and gluten-free brands, and improved share of underpenetrated subcategories.

05-11-2023

ChromaDex Corporation (CDXC $1.47)
Rating: Outperform Price Target: $8
1Q23 Results Exceed Estimates—Raised 2023 Revenue Guidance That Still Looks Beatable—Maintain Outperform Rating— Lower PT to $8 

Investment Summary: We maintain our Outperform rating and lower our price target to $8/sh. (from $9/sh.) on the shares of ChromaDex Corporation (CDXC). Our lower price target reflects changes to our WACC that pressured our DCF-derived value. 1Q23 results were the best we have seen from CDXC in quite a while with the company exceeding expectations on every level. EPS loss of ($0.03) was $0.02 higher than expected and revenue growth of 31% was well ahead of forecasts and the best growth rate since 2Q20. E-commerce sales reached record levels aided by the successful Amazon homepage takeover event while Watsons and Other B2B sales grew 38% as Hong Kong returns to normalcy. Ingredient sales were up 82% driven by a new ingredient customer although this revenue line is expected to be choppy. AEBITDA of ($0.069M) was a nice accomplishment given the lower gross margin sales mix, driven by strong cost control and more efficient marketing spend. 2023 revenue guidance was raised to 12.5% growth or better, and continues to look conservative. We look for guidance to be exceeded meaningfully through improved marketing and conversion rates, growth from Watsons as Hong Kong continues to normalize, improved cross border sales to China (Sinopharm JV) and contributions from international partners that had been set back during the pandemic.

05-08-2023

Prestige Consumer Healthcare, Inc. (PBH $60.76)
Rating: Outperform Price Target: $69
4Q23 Exceeds Forecast—FY24 Guidance Reflects A Tough Comp— Maintain Outperform Rating— Raise PT to $69

Investment Summary: We maintain our Outperform rating and raise our price target to $69 (from $66) on the shares of Prestige Consumer Healthcare (PBH).  4Q23 was a strong performance as EPS (+17% YoY) exceeded our expectations by $0.03/sh. while revenue increased 7% (+8% ex FX) and 2% above our forecast, well above its LT growth algorithm. Once again, lower A&M spending (-300bp) and lower G&A (-70bp) offset a lower gross margin (-200bp) and higher interest expense. Strong sales growth in analgesics (+12%), dermatological (+13%), gastrointestinal (+8%) and oral care (+13%) drove the sales growth. The only weakness was in the women’s health category which was flat and we look for PBH to commit more resources to its Summer’s Eve and Monistat product lines in FY24. We lower our FY24 EPS estimate to $4.31 (from $4.46) to reflect a lower sales and gross margin estimate. We establish a FY25 EPS estimate of $4.66, up an implied 8%. While expect PBH’s fundamental performance over the next 12 months to be largely consistent with its long-term algorithm of 2-3% organic revenue growth and 6-8% EPS growth, our estimates start the year slightly below the algorithm on the sales line due to FX headwinds and the private label exit. We are also below algorithm on EPS growth taking a conservative view of gross margin expansion, particularly in 1H24.

05-05-2023

Mistras Group, (MG $6.76)
Rating: Outperform Price Target: $13
1Q23 Revenue In-Line—Slight EPS Miss—Lower 2023 Estimate—Core Businesses Improving—Maintain Outperform and $13PT

Investment Summary: We reiterate our Outperform rating and $13 price target on the shares of Mistras Group (MG). 1Q23 results largely met our expectations with revenue in line excluding FX headwinds ($2M), gross profit matching our estimate, and EBITDA exceeding our estimate. The Oil & Gas segment (+10% YoY) continued to show improvement with upstream (+14%) and downstream (+9%) overcoming temporary timing weakness in the midstream segment. Favorable energy prices that seem to be in a sweet spot for the moment are driving a more normal environment for MG’s NDT services. Aerospace & Defense segment was down 7% in the quarter due to continued supply chain delays at a major defense contractor but otherwise, this segment performs well. Management expects it will take a couple more years to fully unwind the pent up demand due to the supply chain inefficiencies. EBITDA margin of 5.2% was up 300bp YoY driven by an improving gross margin (billable rates now matching labor rate increases) and continued strong cost controls. The 2023 guidance range was unchanged -- sales up 3% to 8% and EBITDA expected to rise 21% to 29%. We lower our 2023 EPS estimate to $0.45 (from $0.50) owing mostly to the lower 1Q. We believe MG’s core businesses continue to improve and 2023 revenue should approach its former high water mark reached in 2019 prior to the pandemic led by the Oil & Gas segment benefitting from strong pricing and pent-up demand and HSD growth in the Aerospace & Defense segment. Margins will continue to benefit from billing rate hikes, diminishing inflationary pressures and strong overhead control which should lead to near double-digit EBITDA margins in 2023. We remain constructive on MG’s longer-term revenue outlook as we expect the company to capture share of the fragmented $14B oil and gas NDT market through its new technology-enhanced products (i.e. OneSuite), riding the growth of commercial aircraft demand and private space exploration while growing in new markets such as wind turbines and infrastructure segments.

05-05-2023

MGP Ingredients, Inc. (MGPI $100.56)
Rating: Outperform Price Target: $120
1Q23 Exceeds Forecast—Strong 2023 Earnings and Revenue Visibility —Maintain Outperform Rating and $120PT

Investment Summary: We maintain our Outperform rating and $120 price target on the shares of MGP Ingredients (MGPI). 1Q23 results were, once again, well ahead of our cautious estimates. The quarter had a tough comparison to last year when very strong aged whiskey and premium branded spirits sales were aided by unusual demand and inventory builds, while at the same time, operating losses expanded (though less than expected) in the white goods segment. We remain confident in MGPI’s robust growth drivers and believe the positive growth trends driving all three operating segments have meaningful headroom. The American whiskey industry supply shortage will remain for several years, particularly for longer aged product, and believe pricing and margins for MGPI’s aged inventory will remain favorable. The Branded Spirits segment is well-positioned, particularly in the premium subcategories with strong growth in the Yellowstone and Remus (legacy MGP) brands. The Ingredient Solutions segment is driven by consumer demand for plant-based proteins, high fiber and low carb foods, trends that remain robust and the company’s new foray into foodservice with its new Proterra crumbles product could become a meaningful, high margin growth driver in this segment.  MGPI has been quiet on the M&A front given the high valuations expected from sellers. That said, we expect MGPI to enhance its growth and scale with disciplined M&A in the Branded segment. We raise our 2023 EPS estimate to $5.20 (from $5.18) and maintain our EBITDA estimate of $178M. We lower our 2024 EPS estimate to $5.70 (from $5.87) to reflect fine-tuning.

05-04-2023

Fresh Del Monte Produce, Inc. (FDP $26.47)
Rating: Outperform Price Target: $35
Solid 1Q23 Despite FX Headwinds—Supply Chain Cost Pressure Easing—Margins Improving—Maintain Outperform and $35PT

Investment Summary: : We maintain our Outperform rating and $35 price target on the shares of Fresh Del Monte Produce, Inc. (FDP). 1Q23 headline adjusted earnings of $0.55/sh. were $0.03 below expectations, however this excludes an approximate $0.35/share FX headwind. It was a solid quarter from the banana segment despite the FX pressure while the Fresh & Value-added segment showed nice margin progress despite the sales decline as most of the lost volume was due to exiting low margin business. This segment also overcame continued avocado industry weakness but this should become a tailwind in a quarter or two as the avocado industry normalizes. The banana segment outlook remains stable with supply and demand in balance and higher pricing helping to offset the remaining supply chain pressure. The Fresh & Value-added segment outlook is improving, particularly on the margin side as the company focuses on profitable volume growth. The “Other” category continues to grow on the strength of its commercial cargo services which was enabled by its investment in new cargo containers vessels. FDP recently increased cargo capacity by 10% which should further improve this new revenue stream. FDP intends to leverage its global transportation assets, including its land-based distribution, warehousing and cross-docking services into a larger and more meaningful contributor to earnings and we expect to see a growing contribution from this segment. We lower our 2023 EPS estimate to $1.94 (from $1.96) to reflect the 1Q23 miss, a lower 2Q23 and a higher 2H23. Our lower 2Q reflects some conservatism as well as strong FX headwinds. We maintain our 2024 EPS estimate of $2.20, implied growth of 13% on sales growth of 3%.

03-24-2023

MGP Ingredients, Inc. (MGPI $93.70)
Rating: Outperform Price Target: $120
Adjusting Quarterly Estimates—No Change to Annual Estimates—Maintain Outperform Rating and $120 Price Target

Investment Summary: We maintain our Outperform rating and $120 price target on the shares of MGP Ingredients (MGPI). 

We adjust our 2023 quarterly estimates to reflect a more realistic quarterly sequence. Our 2023 and 2024 annual estimates for sales, EBITDA and EPS are unchanged. We remain confident in our estimates and outlook for MGPI, particularly given a backdrop of a solid demand outlook in its brown goods, Branded spirits and Ingredient Solutions segments. We believe the sales and margin pressure in the white goods segment are adequately factored into the company’s guidance. The stock has declined meaningfully (-12% YTD) and we believe represents a compelling value at 12.8x EV/EBITDA (’23e), an 18% discount to its three-year average and a 10% discount to the S&P 1500 Food, Beverage, Tobacco index.  Our $120PT implies a forward EV/EBITDA (’24e) multiple of 14.7x. 

03-20-2023

Lifecore Biomedical, Inc. (LFCR $1.67)
Rating: N/A; Target: N/A
Terminating Coverage

Investment Summary: We terminate coverage of Lifecore Biomedical (LFCR) based on strategic changes at the company. LFCR’s sale of its food businesses and sole focus as a CDMO (contract design and manufacturing organization) business is no longer consistent with our primary consumer sector research coverage. Our prior estimates, $16 price target, and Outperform rating should no longer be relied upon going forward.

03-10-2023

Mistras Group, Inc. (MG $5.53)
Rating: Outperform Price Target: $13
4Q22 EPS Beat Forecast—Raised 2023 EPS Estimate—Core Businesses Improving —Maintain Outperform—Lower PT to $13

Investment Summary: We reiterate our Outperform rating and lower our price target to $13 on the shares of Mistras Group (MG). 4Q results exceeded our forecast slightly due to strength in the Oil & Gas segment and overcoming continued FX headwinds (~$4M) and higher interest expense. Oil & Gas revenue grew 6% on the strength of the upstream and downstream business which have been supported by favorable energy prices that seem to be in a sweet spot for the moment. Aerospace & Defense segment was down 10% in the quarter due to supply chain delays at a major defense contractor but otherwise, this segment performs well. Margins were higher as increased billing rates began to have a positive impact and offset inflationary pressures. 2023 guidance range was in line with our estimates with sales expected to increase 3% to 8% and EBITDA expected to increase 21% to 29%. We raise our 2023 EPS estimate to $0.50 (from $0.48) to reflect a host of minor changes including higher interest expense, a lower tax rate and a higher gross margin reflecting the higher billing rates offsetting inflationary headwinds. MG’s core businesses continue to improve and 2023 revenue should approach its former high water mark reached in 2019 prior to the pandemic led by the Oil & Gas segment benefitting from strong pricing and pent-up demand, and continued mid-teen growth in the Aerospace & Defense segment. Margins will benefit from billing rate hikes instituted in 2022, diminishing inflationary pressures and strong overhead control.

03-09-2023

ChromaDex Corporation (CDXC $1.83)
Rating: Outperform Price Target: $9
4Q22 Results In Line and Cash Flow Breakeven—2023 Guidance Is Beatable—Maintain Outperform Rating— Lower PT to $9 

Investment Summary: We maintain our Outperform rating and lower our price target to $9/sh. (from $10/sh.) on the shares of ChromaDex Corporation (CDXC). 4Q22 EPS loss of ($0.02) and revenue growth of 18% were both largely in line with our forecast and we were generally pleased with the results, in particular the good expense control and continued CAC improvement (-40%) allowing for positive adjusted EBITDA of $0.4M, a nice accomplishment given the sales mix. The not-so-good news was the core e-commerce revenue was flat YoY, below our forecast for 8% growth as lower conversion rates and a negative and misleading clickbait article on NR weighed on results. 2023 revenue guidance of 10% growth, or better, looks conservative and we would be disappointed if this were not exceeded meaningfully (a good set up for 2023) through improved marketing and conversion rates, growth from Watsons as Hong Kong normalizes, improved cross border sales to China (Sinopharm JV) and contributions from international partners that had been set back during the pandemic. We were also encouraged to hear about a potential new product/new channel plans for later in the year, likely using one of its new, patented forms of NAD+ precursors. 2023 AEBITDA should be positive with the exception of 1Q as the company ups A&M spend for a brand building event in March. The remaining three quarters are expected to be cash flow breakeven driven by more efficient and focused digital marketing, continued lower CAC and reduced G&A spending.  We continue to view CDXC’s growth of attractive ingredient partnerships with quality, multinational nutritional health companies such as Sinopharm, H&H, Ro, Designs for Health and Nestle as evidence of NR’s sizeable potential from those that are deep into the science.

03-07-2023

Calavo Growers, Inc. (CVGW $31.32)
Rating: Outperform Price Target: $36
1Q23 Loss on Lower Avocado Margins and Consumer Weakness—Lower FY23-24 Estimates—Maintain Outperform—Lower PT to $36

Investment Summary: We maintain our Outperform rating and lower our price target to $36 (from $40) on the shares of Calavo Growers, Inc. (CVGW). 1Q23 results missed our estimates, once again, as avocado pricing was lower than anticipated due ample wholesale inventories and high retail prices while the Prepared segment volumes fell 13% on a weakening produce consumer, the most troublesome near-term factor in the quarter. That said, we remain constructive on CVGW and view the second consecutive quarterly earnings miss and stock decline as another attractive opportunity to own the stock with a compelling long-term risk/reward scenario. The avocado category remains one of the fastest growing produce categories but has been out of balance since 2020. We believe the category will find its equilibrium in the coming quarters as supplies, prices and margins normalize. The Prepared segment has more to overcome in the near-term due to consumer spending risk but new customer growth in 2H23 and improved cost structure and contract pricing flexibility should lead to better results although RFG will likely be at the low end of its 10-12% FY23 gross margin goal. We lower our FY23 EPS estimate to $0.75 (from $1.73) to reflect management’s guidance. We lower our FY24 EPS estimate to $1.46 (from $2.09) to reflect conservatism. We remain confident in CVGW’s long-term earnings power of $3.00+, but continue to expect that CVGW will no longer carry a premium multiple as it had over the past 10 years owing to lower visibility, a more competitive avocado market and the pandemic’s exposure of CVGW’s end market and supply chain risks. Our $36 price target derived from our updated DCF model implies a muted recovery year in FY23 and into FY24. We were most surprised by the board’s dividend cut and trimming capex spending, a clear message that CVGW’s timeline to reaching pre-pandemic earnings levels is going to be much slower than expected.

03-03-2023

UTZ Brands, Inc. (UTZ $17.44)
Rating: Marketperform Price Target: $19
4Q22 Results Beat Estimates—Raising 2023 Sales Forecast—EBITDA Outlook Unchanged—Maintain Marketperform Rating and $19PT

Investment Summary: We maintain our Marketperform rating and $19PT on the shares of Utz Brands, Inc. (UTZ). 4Q22 results exceeded our estimates on all fronts while initial 2023 guidance was more or less consistent with our forecast that reflects an “on-algorithm” growth year (sales growth of 3-4%, EBITDA growth of 6-8%) with a touch of upside. We view UTZ’s 2023 as a year where it is on a glidepath to improved gross margins through easing input costs and continued productivity gains and one where management does not want to guide too aggressively. UTZ will still contend with HSD inflation and while confident in its price elasticities in the ever-rational salty snack category, the price increases over the last 18 months have been at historical levels and the macro environment will test the consumer’s wherewithal over the next year. Importantly, against the backdrop of having new CEO Howard Friedman at the helm, meeting or exceeding guidance would be a high priority. Our neutral rating on the shares is largely valuation-driven -- our $19PT implies a 12-month forward EV/EBITDA (’24e) multiple of 18.1x which we believe leaves little room for multiple expansion On the positive side, UTZ carries significant sales momentum into 2023 with demonstrated consumer demand for its three key brands representing 75% of sales -- Utz, On The Border, Zapps. We look for a steady cadence of line extensions and supported further with a doubling of A&M spending (up to 1% of sales) weighted to the back half of the year.

02-24-2023

MGP Ingredients, Inc.  (MGPI $106.25)
Rating: Outperform Price Target: $120
4Q22 Exceeds Forecast By Wide Margin—Strong Visibility for 2023—Maintain Estimates and Outperform Rating—Raise PT to $120

Investment Summary: We maintain our Outperform rating and raise our price target to $120 (from $115) on the shares of MGP Ingredients (MGPI). 4Q22 results were, once again, well ahead of our estimates as continued strong demand for American whiskey, both aged and new distillate, along with the premiumization trend in Branded Spirits and continued demand for plant-based proteins and higher fiber ingredients in the Ingredient Solutions segment drove the favorable results. We remain confident in MGPI’s robust growth drivers and believe the positive growth trends have meaningful headroom. The American whiskey industry supply shortage will remain for several years, particularly for longer aged product, and believe pricing and margins for MGPI’s aged inventory will remain favorable. The Branded Spirits segment is well-positioned, particularly in the premium subcategories with strong growth in the Yellowstone and Remus (legacy MGP) brands. The Ingredient Solutions segment is driven by consumer demand for plant-based proteins, high fiber and low carb foods, trends that remain robust and the company’s new foray into foodservice with its new Proterra crumbles product could become a meaningful, high margin growth driver in this segment. The key factor for MGPI’s growth drivers is they are margin accretive. MGPI has been quiet on the M&A front given the high valuations expected from sellers. That said, we expect MGPI to enhance its growth and scale with disciplined M&A in the Branded segment. We maintain our 2023 EPS estimate of $5.18 with a new EBITDA estimate is $178M (from $181M).

02-23-2023

Fresh Del Monte Produce, Inc. (FDP $31.50)
Rating: Outperform Price Target: $35
Strong 4Q22 Beat on Record Banana Margins—Supply Chain Cost Pressure to Remain in 1H23—Maintain Outperform— Raise PT to $35

Investment Summary: We maintain our Outperform rating and raise our price target to $35 (from $33) on the shares of Fresh Del Monte Produce, Inc. (FDP). Our higher price target reflects higher FCF estimates and improved returns on assets. 4Q22 earnings were $0.51 above our forecast driven by a record gross margin in the banana segment driven by price increases and more disciplined supply strategy limiting unprofitable excess supplies. Sales were up 2%, in-line with our forecast, driven by strength in bananas, pineapples, and prepared foods, offset by weakness in avocados. Mann Packing continues to improve and management remains confident that Mann Packing and the broader Fresh & Value-added segment will see improved sales and margin performance in 2023. We are encouraged that the company’s focus on profitable volume growth can help improve banana segment margins over time. The banana segment remains very low margin and intensely competitive, and moreover, very difficult to predict. FDP continues to diversify its business toward higher value-added products and services and away from the banana business but it will always feel the effects of agricultural industry shocks and the more-than-occasional irrational competitive environment. The “Other” category continues to grow and aided by strength in its commercial cargo services which was enabled by its recent investment in new cargo containers vessels. FDP intends to leverage its global transportation assets, including its land-based distribution, warehousing and cross-docking services into a larger and more meaningful contributor to earnings and we expect to see a growing contribution from this segment. We raise our 2023 EPS estimate to $1.96 (from $1.87) to reflect improved banana margins as well as a slightly higher revenue forecast. We lowered our 1Q23 estimate, now expecting a flattish result reflecting some margin conservatism.

02-13-2023

Flowers Foods, Inc. (FLO $27.52)
Rating: Outperform Price Target: $33
4Q22 In-Line—Brands Performing Well—Lower 2023 Estimate on ERP and Investment Spending —Maintain Outperform and $33PT

Investment Summary: We maintain our Outperform rating and $33 price target on the shares of Flowers Foods, Inc. (FLO). 4Q22 EPS met our forecast on lower-than-expected sales growth. Continued gross margin pressure (-110bp) and strength in store brand sales (lower margin) offset the higher sales (+10%). FLO’s 2023 guidance of flattish EPS growth ($1.20-$1.30) on  8-9% sales growth reflects 1H23 gross margin pressure and investment spending behind its new ERP implementation (~$26M or $0.09/sh.) reflected in SD&A expense as well as a modest spend (~$0.02/sh.) to support the DKB bar rollout.  Despite the continued strong price/mix gains (price/mix +14.1%), elasticities are holding up favorably for its leading brands. All of the private label share gains are in the mass channel where retailers have only just started to increase store brand prices -- private label bread lost share in the grocery channel. We maintain our view that consumers increasingly prefer higher quality and higher value-added breads that store brands do not offer and to this end, FLO remains in a strong position with Nature’s Own, Canyon Bakehouse and Dave’s Killer Bread, all of which maintained unit share in the quarter. We lower our 2023 EPS estimate to $1.27 (from $1.40) while raising our revenue estimate to 7% growth (from 4%). Our lower estimate reflects $0.09/sh. of ERP implementation costs and marketing behind new DKB bars. We establish a 2024 EPS estimate of $1.38 on 4% revenue growth. While 2023 will be a “below algorithm” year for FLO we continue to believe FLO’s long-term targets — sales growth of 1-2%, EBITDA growth of 4-6% and EPS growth of 7-9% — are realistic and achievable, with M&A an incremental source of growth.

02-03-2023

Prestige Consumer Healthcare, Inc.  (PBH $60.35)
Rating: Outperform Price Target: $66
Slight EPS Beat in 3Q23 on Lower A&M Spending—Lower FY23 and FY24 Estimates— Maintain Outperform Rating — Raise PT to $66

Investment Summary: We maintain our Outperform rating and raise our price target to $66 (from $63) on the shares of Prestige Consumer Healthcare (PBH). Our price target has bounced around over the past three months primarily reflecting adjustments to our risk-free interest rate assumption (down from November) in our DCF model. 3Q23 was a mixed performance as EPS exceeded our expectations by $0.02/sh. while revenue missed by 1% as a lower gross margin (-190bp YoY) and higher interest expense was offset by lower A&M spending (see Figure 1). Strong sales growth in the cough and cold (+18%), gastrointestinal (+11%) and international (+15%) led to a 1.8% revenue increase excluding negative FX. Gross margin remained under pressure but should rebound to the 56% area in FY24 on continued pricing actions and positive product mix. Offsetting the gross margin pressure was lower A&M spending (-360bp) as continued strong demand minimized the A&M need. We lowered our 4Q23 EPS estimate by $0.02 to $1.04 to reflect the updated guidance. Our new FY23 EPS estimate is $4.18 (down $0.01) while we lowered our FY24 EPS estimate by $0.05 to $4.46 reflecting primarily a lower gross margin assumption. Overall, we expect PBH’s fundamental performance over the next 12 months to be consistent with its long-term algorithm of 2-3% organic revenue growth and 6-8% EPS growth. We expect retailers across all channels to continue to focus on improved inventory levels which should support solid organic revenue growth while margins should normalize.

12-22-2022

Calavo Growers, Inc. (CVGW $29.00)
Rating: Outperform Price Target: $40
Raise Rating to Outperform—Maintain $40PT—4Q Hurt By Temporary Supply Imbalance—RFG Poised For Further Margin Gain

Investment Summary: We raise our rating to Outperform (from Marketperform) and maintain our $40PT on the shares of Calavo Growers, Inc. (CVGW). 4Q22 results missed our estimates as avocado pricing was lower than anticipated due to a temporary supply imbalance late in the quarter. The near 15% drop in CVGW’s stock price due to the meaningless quarterly earnings miss is unwarranted and creates an attractive opportunity to own the stock with a compelling risk/reward scenario. Higher supplies of low quality fruit from Peru temporarily disrupted pricing but has no impact on the improved avocado outlook for the 2023. Avocado supplies out of Mexico are poised for a 10%+ volume year which should keep prices low, a positive for consumption growth, the key to the CVGW growth story. Perhaps more importantly, RFG’s performance continues to improve, particularly on the margin side, and allows RFG to increase its focus on revenue growth. RFG’s growth combined with more favorable fruit costs in its guacamole business (formerly Calavo Foods) should allow margins in the Prepared segment to expand meaningfully in 2023. Management noted that with increased operating efficiencies and improved product mix, it expects RFG to reach a 10-12% gross margin by 4Q23, a level well above its historical margins and above our current forecast.

12-08-2022

UTZ Brands, Inc. (UTZ $18.69)
Rating: Marketperform Price Target: $19
Lower Rating to Marketperform - Lower 2023 Estimates to Reflect Less Aggressive Margin Expansion - Maintain $19PT

Investment Summary: We lower our rating on the shares of Utz Brands, Inc. (UTZ) to Marketperform (from Outperform) and maintain our $19 price target. We lower our 2023 sales, EBITDA and EPS estimates to reflect an “on-algorithm” growth year (sales growth of 3-4%, EBITDA growth of 6-8%) -- we had been more aggressive and we now reflect CFO Ajay Kataria’s 3Q comments that UTZ is confident that 2023 can deliver an on-algorithm year as opposed to our prior, more aggressive view. We note that our 2023 EBITDA growth estimate of 11% (down from 19%) is still well ahead of its longer-term target range. Our lower rating is largely valuation-driven -- our $19PT implies a 12-month forward EV/EBITDA (’24e) multiple of 18.0x and with little room for upside to the multiple and within 2% of our price target, we believe a neutral rating is appropriate. On the positive side, 1) UTZ carries significant sales momentum into 2023 and is confident that pricing plus productivity can fully offset the high single-digit cost inflation expected for 2023, 2) demand remains strong and price elasticities are favorable, a testament to the attractive and advantaged salty snack category, 3) the long-term revenue growth outlook remains robust with above-category growth potential expected from continued geographic expansion, new customers, new subcategories and stronger mass and club channel penetration.  On the negative side, 1) it appears that a recession and increased pressure on consumer spending is becoming more likely in 2023 and while UTZ and the snack category handle recessions well, sales growth rates during recessions are muted and presents modest elevated risk to sales growth, and 2) UTZ’s net debt of $861M is just under 5.0x leverage and leaves little room for M&A in the intermediate-term in our view, a key revenue growth accelerator. While we remain positive on UTZ’s long-term outlook and revenue growth drivers, we believe the stock’s valuation leaves little room for a re-rating to the upside unless it can deliver a well-above algorithm year, which our EBITDA estimate already reflects.

12-02-2022

Flowers Foods, Inc. (FLO $29.89)
Rating: Outperform Price Target: $33
Bakery Tour & Management Meeting Takeaways - Maintain Outperform and $33PT

Investment Summary: We maintain our Outperform rating and $33 price target on the shares of Flowers Foods, Inc. (FLO). We had the opportunity to attend a tour of its Oxford, PA bakery and meet a large swath of the management team responsible for implementing and executing its “Bakery of the Future” plans and goals. Over our 30 years of covering Flowers Foods, we have toured 10 of its 45 bakeries and there is no doubt in our mind that the Oxford, PA bakery was the most impressive display of bakery efficiency, enhanced by the newly installed digital tools. FLO’s digital transformation within the bakery is current implemented in 15 of its 45 bakeries. FLO admittedly has fallen behind the competition in terms of digital and related technology investments within its bakeries and is playing catch-up at the moment. The bakery margin expansion opportunity will be a meaningful contributor if FLO expects to reach its goal of a mid-teens EBITDA margin, something management believes is still three-to-five years out. The other significant margin driver will be sales mix -- more branded product and less store brand and foodservice sales -- and this can be fixed internally by being more selective with private label and foodservice customers, and further accelerated by branded M&A. We continue to believe FLO’s long-term targets — sales growth of 1-2%, EBITDA growth of 4-6% and EPS growth of 7-9% — are realistic and achievable, with M&A as an incremental source of growth.

11-14-2022

UTZ Brands, Inc. (UTZ $17.11)
Rating: Outperform Price Target: $19
Strong 3Q22 Sales Performance Driven by Pricing—Margins Improving—Maintain Outperform Rating and $19PT

Investment Summary: We maintain our Outperform rating and $19 price target on the shares of Utz Brands, Inc. (UTZ). 3Q22 results were better than expected driven by strong revenue growth (+16%, +13% organic) and better-than-expected margins. UTZ lost share in the salty snack category (+17% vs +19% category growth) but the share losses are mainly a timing issue in the expansion markets where a strong mass channel promotion was not repeated in the current quarter. UTZ remains confident in its growth algorithm (sales +3-4%, EBITDA +6-8%) for 2023 although it did not provide official guidance. The company carries significant sales momentum into the new year and is confident that pricing plus productivity can fully offset the high single-digit cost inflation expected for 2023. UTZ noted that demand remains strong and price elasticities are favorable, a testament to the attractive and advantaged salty snack category. We raise our 2022 adjusted EPS estimate to reflect the stronger 3Q offset by a lower 4Q (-$0.01). Our 2022 AEBITDA estimate is up $6M to $165M. We believe a combination of higher pricing, price pack architecture, trade efficiencies and COGS productivity initiatives will continue to offset the current inflation expectations (HSD) and look for 2023 margins to begin to normalize. Our new 2023 EBITDA estimate is $195M (from $184M) reflecting a higher revenue and margin outlook. Long-term investors should be focused on UTZ’s revenue outlook which remains robust both in the near and longer-term with above-category growth expected from continued geographic expansion, new customers, new subcategories and stronger channel penetration.

11-14-2022

Flowers Food, Inc. (FLO $26.90)
Rating: Outperform Price Target: $33
3Q22 Sales Beat & EPS In-Line—Brands Performing Well—Estimates Unchanged—Maintain Outperform and $33PT

Investment Summary: We maintain our Outperform rating and $33 price target on the shares of Flowers Foods, Inc. (FLO). 3Q22 adjusted EPS met our forecast while sales results exceeded our forecast. Continued gross margin pressure (-300bp) and some strength in store brand sales (lower margin) offset the sales strength (+13%). FLO maintained EPS guidance and tightened its sales growth forecast to 11-12% (from 10-12%). Based on the guidance, it infers that inflationary pressures should ease somewhat in 4Q. Despite the strong price increases (price/mix +17.8%), elasticities are holding up favorably for its leading brands. Most of the private label share gains are in the mass channel where retailers have not increased store brand prices and choose to sell its bread at a loss -- seems irrational to us. We maintain our view that consumers increasingly prefer higher quality and higher value-added breads that store brands do not offer and to this end, FLO remains in a strong position with Nature’s Own, Canyon Bakehouse and Dave’s Killer Bread, all of which maintained or gained share in the quarter. We maintain our 2022 and 2023 EPS estimates of $1.28 and $1.40, respectively. With continued inflationary pressures on household budgets, we expect continued private label trade down risk although we believe it is manageable for FLO given its containment to the mass channel and FLO’s brand strength. Further, should weakness in the foodservice sector continue, a trend toward at-home bread consumption would be favorable to margins. We continue to believe FLO’s long-term targets — sales growth of 1-2%, EBITDA growth of 4-6% and EPS growth of 7-9% — are realistic and achievable, with M&A as an incremental source of growth. We remain positive on the stock based on FLO’s ability to deliver above-average revenue growth over the longer-term driven by market share gains in new territories, above-average population growth in its strongest territories, growth of its leading organic and gluten-free brands, and improved share of underpenetrated subcategories.

11-04-2022

Prestige Consumer Healthcare, Inc. (PBH $54.63)
Rating: Outperform Price Target: $63
Slight Beat in 2Q23 Despite Gross Margin Pressure—Raise FY23 & FY24 Estimates— Maintain Outperform Rating — Lower PT to $63

Investment Summary: We maintain our Outperform rating and lower our price target to $63 (from $68) on the shares of Prestige Consumer Healthcare (PBH). Our lower price target reflects a higher risk-free interest rate assumption and higher WACC in our DCF model. 2Q23 revenue and EPS exceeded our expectations (see Figure 1) driven by strong sales growth in GI (international), cough and cold, and analgesics segments. Margins were down due to gross margin pressure and higher A&M spending. For FY23, we expect the EBITDA margin to be mostly flat with last year as gross margin pressure continues, offset by lower A&M and G&A spending. Guidance was unchanged and management still expects FY23 organic growth in the 2-3% range and 3-4% including the incremental revenue from its Akorn acquisition. We maintain our constructive view of PBH’s business model -- consumption growth is fairly predictable given that the portfolio is needs-based, has low private brand penetration and is channel agnostic. Couple the predictable longer-term sales trends with stable (and high) margins and modest capital needs and PBH delivers consistently strong FCF to redeploy in M&A and share repurchases (PBH just completed a $50M repurchase). We raise our FY23 EPS estimate to $4.19 (from $4.18) to reflect the Q2 beat-- our new estimate remains at the low end of guidance. We raise our FY25 estimate to $4.51 (from $4.50) to reflect minor changes. We maintain our view that PBH’s business model and solid execution can deliver LSD-MSD organic growth over the long-term with a stable margin profile that delivers meaningful free cash flow (FCF yield of 21%) to support further value-creating M&A growth. Over the next year, we expect PBH to reduce leverage although there is still ample capacity to do a $275-300M transaction while remaining in a comfortable leverage range (<4.0x).

11-04-2022

Mistras Group, Inc. (MG $4.46)
Rating: Outperform Price Target: $15
3Q22 Results Lower Than Expected—Remain Constructive on 2023—Maintain Outperform and $15PT

Investment Summary: We reiterate our Outperform rating and $15 price target on the shares of Mistras Group (MG). 3Q results missed our forecast due to several factors including FX headwinds (~$5M), timing issues and higher interest expense. 3Q revenue increased 2.2% (+5.1 ex FX) driven by 27% growth in the Aerospace & Defense segment. Oil & Gas segment revenue was up 3% with particular strength in the upstream (+11%) and downstream (+8%) segments. Midstream was down 4% due to the timing of larger projects in last year’s quarter. Sales and EBITDA guidance for 2022 was reduced with most of the reduction representing FX headwinds ($15M for the year). We lower our 2022 EPS estimate to $0.17 (from $0.33) to reflect the lower 3Q results and a lower 4Q estimate. While 3Q22 missed our estimates, we remain constructive on the 2023 setup and believe our estimates are conservative. While FX headwinds will likely continue for several quarters, MG’s core businesses have improved meaningfully from the pandemic troughs and are demonstrating robust growth. In particular, Aerospace & Defense is the clear bright spot but pent-up demand in the Oil & Gas segment could drive an upside surprise. Margins have been pressured by continued inflationary pressures while contract rate increases lag behind by a quarter, however, rate hikes will catch up in 2023. Management noted continued strength in renewables monitoring and while small, is attractive incremental growth next year. We maintain our 2023 EPS estimate of $0.48 and reiterate our view that our estimate is conservative. We remain constructive on MG’s longer-term revenue outlook as we expect the company to capture share of the fragmented $14B oil and gas NDT market through its new technology-enhanced products (i.e. OneSuite), riding the growth of commercial aircraft demand and private space exploration while growing in new markets such as wind turbines and infrastructure segments.

11-03-2022

Fresh Del Monte Produce, Inc. (FDP $27.25)
Rating: Outperform Price Target: $33
3Q22 Exceeds Forecast on Stronger Margins—Supply Chain Cost Pressure to Remain in 2023—Maintain Outperform— Lower PT to $33

Investment Summary: We maintain our Outperform rating and lower our price target to $33 (from $35) on the shares of Fresh Del Monte Produce, Inc. (FDP). Our lower price target reflects a higher WACC in our DCF model due to a higher risk-free interest rate assumption. 3Q22 earnings were $0.39 above our forecast driven by better-than-expected gross margins in all three operating segments. The stronger margins were mostly the result of hefty price increases implemented to offset the significant supply chain inflation. Sales were up 5%, in-line with our forecast, driven by strength in bananas, pineapples and fresh-cut fruit, offset by weakness in avocados and fresh-cut vegetables. Mann Packing continues to recover from the pandemic and the 2018 product recall and management remains confident that Mann Packing and the broader Fresh & Value-added segment will see improved performance in 2023. The banana segment remains very low margin and intensely competitive, and moreover, very difficult to predict. FDP continues to diversify its business toward higher value-added products and services and away from the banana business but it will always feel the effects of agricultural industry shocks and the more-than-occasional irrational competitive environment. The “Other” category continues to grow and aided by strength in its commercial cargo services which was enabled by its recent investment in new cargo containers. Interestingly, management hinted that it intends to leverage its global transportation assets, including its land-based distribution, warehousing and cross-docking services into a larger and more meaningful contributor to earnings.

11-03-2022

ChromaDex Corporation (CDXC $1.67)
Rating: Outperform Price Target: $10
3Q22 Revenue Below Estimate—Solid Expense Control—Nearing Cash Flow Breakeven—Maintain Outperform Rating and $10PT 

We maintain our Outperform rating and $10 price target on the shares of ChromaDex Corporation (CDXC). 3Q22 revenue declined 1% and was below our forecast due to a slower e-commerce growth rate (+7%) and lower sales to international partners (continued COVID headwinds). Most importantly, CDXC is getting close to cash flow breakeven with a loss of $1.2M in the quarter including legal expense and $0.1M positive cash flow excluding legal. In our view, this is the most important metric for the stock’s intermediate-term performance as it removes the risk of further equity dilution - until this happens, the stock will likely remain range-bound at current levels. CDXC expects to achieve cash flow breakeven results in 4Q and sees positive cash flow in 2023. Contributing to this goal was a reduction in advertising and marketing spending (-19%) but with more efficient and focused digital marketing, customer acquisition costs fell 40%, very good news if this greater CAC efficiency can be maintained. At the same time, CDXC has reduced overhead spending with G&A spend down 45% in the quarter. We are encouraged by the revenue setup for 2023, particularly in its core e-commerce business. We expect the more focused and effective digital marketing initiatives and improved social media presence to accelerate e-commerce sales. Watsons is beginning to see a return to normal in Hong Kong and other international partners, such as H&H appear to be gaining momentum. Sinopharm cross border sales and ongoing ingredient sales to Nestle (NSRGY-$108.07, Not Rated) could provide upside. We continue to view CDXC’s growth of attractive ingredient partnerships with quality, multinational nutritional health companies such as Sinopharm, H&H, Ro, Designs for Health and Nestle as evidence of NR’s sizeable potential from those that are deep into the science.

10-07-2022

Landec Corporation (LNDC $8.71)
Rating: Outperform Price Target: $16
Lifecore’s 1Q23 And Guidance Consistent with Our View—Waiting on Remaining Asset Sales—Maintain OP Rating— Lower PT to $16

We maintain our Outperform rating and lower our price target to $16 on the shares of Landec Corporation (LNDC). Our lower price target reflects the impact of a higher WACC in our updated discounted cash flow model. Our Lifecore estimates reflected in our DCF model have not changed. 1Q23 results from Lifecore were consistent with our estimates and guidance remains unchanged with Lifecore revenue of $122-126M (our estimate is $121M) and AEBITDA of $31-33M (our estimate is $33M). Published EPS, revenue and EBITDA estimates are of little value for the LNDC story and we will begin publishing quarterly estimates once the remaining Curation assets are sold. Management had no update on the sale process other than to say that the process is well underway with the hope that it is completed by fiscal year end. We continue to estimate a conservative $65M of proceeds from the asset sales in our financial models. The company will be changing its name to Lifecore Biomedical and sport a new ticker -- LFCR -- with the change expected in November. Lifecore is an emerging, fully integrated contract development and manufacturing organization (CDMO) focused on the fill and finish of sterile, injectable pharmaceutical products in syringes and vials. Its expertise as a leading manufacturer of premium, injectable grade hyaluronic acid (HA) provides a differentiated offering and HA is viewed as an ideal excipient for injectable therapies. Approximately 55% of all new drug applications are injectable and prefilled syringe demand is growing at an estimated 13% compound annual rate. Lifecore continues to add to its syringe and vial capacity and the limited industry capacity in injectable drug manufacturing adds to the positive demand backdrop. Lifecore remains an undiscovered name for most investors interested in the CDMO sector, but we don’t expect this to last long. We look for Lifecore to generate double-digit revenue and operating profit growth over the next five years driven by both its CDMO and HA fermentation businesses. We believe LNDC is meaningfully undervalued relative to its CDMO peers and expect a new group of investors to re-rate the stock higher as Lifecore’s strategic positioning, growth drivers and outlook is better understood.

10-06-2022

Mistras Group  (MG $4.78)
Rating: Outperform Price Target: $15
Management Meeting Takeaways—Short & Intermediate-Term Outlook Improving—Maintain Outperform—Lower PT to $15

We reiterate our Outperform rating and lower our price target to $15 (from $17) on the shares of Mistras Group (MG). Our lower price target reflects our updated discounted cash flow analysis and the impact of higher rates on our WACC assumption and assumes no changes to our prior financial outlook. We recently met with MG’s CEO Dennis Bertolotti and CFO Ed Prajzner and came away incrementally positive on 2023’s prospects which we admit to having a very conservative view. While we believe MG is meaningfully undervalued at current levels, we also understand why there is little current interest in the name and hence, the heavily discounted valuation. MG is a microcap stock that has shown minimal and inconsistent revenue growth over the last three years, has regularly missed either revenue and/or EPS estimates, and against the backdrop of above-average balance sheet leverage (3.5x) in a rising rate environment. On the other hand, 1) MG has nearly fully recovered from the pandemic and energy market disruptions and is now approaching the revenue and EBITDA levels reached in 2019 prior to the pandemic, 2) had its business model stress-tested during the pandemic with very positive FCF results paying down $55M of LT debt since 2019, 3) continues to generate $30M+ of FCF and should see net debt decline with leverage closer to 2.5x within the next 12 months, and 4) MG’s core energy market has shown nice growth in the upstream and midstream sectors, and downstream, which has lagged, could show some upside in 2023 due to pent up demand in capital projects. Coupled with HSD growth in the Aerospace & Defense segment and growth in renewables monitoring and digital offerings, provides a more positive tone for revenue growth over the next several years. Overall, we see low-to-mid-single digit revenue growth over the next three years which assumes the downstream business remains at current levels with the capture of pent up demand as upside to our forecast.

09-02-2022

Calavo Growers, Inc.    (CVGW $41.72)
Rating: Marketperform Price Target: $40
3Q Hurt By Lower Avocado Volumes Though Outlook Improving—RFG Progressing—Maintain Marketperform Rating and $40PT

We maintain our Marketperform rating and $40 price target on the shares of Calavo Growers, Inc. (CVGW). 3Q22 results were lower than expected as a 19% decline in avocado volumes due to lower supplies hurt the Grown segment and a loss in its guacamole business due to higher fruit costs offset an improved performance in the RFG operations in the Prepared segment. While the quarter was below expectations, we believe CVGW performed well considering the lousy avocado market conditions. Importantly, we continue to see progress in the RFG business which posted a better-than-expected 7.7% gross margin and bringing into sight its longer term target of 10-12%. RFG margins peaked at the 9% level (FY15) but we believe management’s expectations are realistic for RFG. However, we have not modeled that level of improvement as we remain cautious on this segment’s volatile input costs and operational complexity though we are incrementally more positive on the potential margin trajectory. The avocado market appears to be regaining its footing with improved supplies coming out of Mexico in August (+35% from July), further aided by the additional supply out of Jalisco. Pricing is beginning to decline which should spur demand. Management was cautious on 4Q, particularly as the avocado market was still somewhat difficult in August and RFG will experience some seasonality. We lower our FY22 EPS estimate to $0.86 (from $1.07) to reflect the 3Q miss and a lower 4Q estimate. We maintain our FY23 EPS estimate of $2.00. We remain confident in CVGW’s long-term earnings power of $3.00+, but expect that CVGW will no longer carry a premium multiple as it had over the past 10 years owing to lower visibility, a more competitive avocado market and the pandemic’s exposure of CVGW’s end market and supply chain risks.

08-15-2022

Flowers Foods, Inc.  (FLO $27.53)
Rating: Outperform Price Target: $33
2Q22 Sales & EPS Above Forecast—Brands Performing Well—Raising 2022 Estimate—Maintain Outperform—Raise PT to $33

We maintain our Outperform rating and raise our price target to $33 on the shares of Flowers Foods, Inc. (FLO). 2Q22 adjusted EPS and sales results exceeded our forecast on strong sales growth (+11%) offset by expected gross margin pressure (-240bp). FLO raised the bottom end of its 2022 EPS guidance by $0.05 to $1.25-1.30. Inflationary pressures are expected to peak in 3Q and begin to ease somewhat in 4Q. Despite the strong price increases (price/mix +14.4%), elasticities are holding up favorably. Most of the pressure is in the mass channel and so far, private label increases are negligible. We maintain our view that consumers increasingly prefer higher quality and higher value-added breads that store brands do not offer and to this end, FLO remains in a strong position with Nature’s Own, Canyon Bakehouse and Dave’s Killer Bread. We raise our 2022 EPS estimate by $0.03 to reflect the Q2 beat (+$0.03) while our 2H22 estimates are unchanged. We lower our 2023 EPS estimate to $1.40 (from $1.42) to reflect higher sales and a slightly lower margin. FLO remains among the best performing consumer staples stocks over the past three and 12 months periods and seems to remain an under-the-radar name in staples. We believe FLO will continue to benefit from the steady gains branded bread has incurred at the expense of zero-margin store brands and expect FLO’s “bakery of the future” implementation to improve fixed asset utilization that should contribute to an improved margin profile over the next several years. We continue to believe FLO’s long-term targets — sales growth of 1-2%, EBITDA growth of 4-6% and EPS growth of 7-9% — are realistic and achievable, with M&A as an incremental source of growth. We remain positive on the stock based on FLO’s ability to deliver above-average revenue growth over the longer-term driven by market share gains in new territories, above-average population growth in its strongest territories, growth of its leading organic and gluten-free brands, and improved share of underpenetrated subcategories.

08-12-2022

Utz Brands, Inc.  (UTZ $17.71)
Rating: Outperform Price Target: $19
Strong 2Q22 Sales and Improved Margin Performance—Guidance Raised—Maintain Outperform Rating—Raising PT to $19

We maintain our Outperform rating and raise our price target to $19 on the shares of Utz Brands, Inc. (UTZ). 2Q22 results were better than expected driven by strong revenue growth (+18%, +13% organic) and better-than-expected margins as it appears margins have bottomed. UTZ gained share in the salty snack category as its power brands outperform (+17% YoY), particularly in its core markets (+19%). Management expects continued mid-to-high teens input cost inflation in 2H22 but its February and May price increases along with additional 2H22 pricing actions and productivity gains should offset the known pressures. UTZ noted that demand remains strong, a testament to the strength of an advantaged consumer staples category. We raise our 2022 adjusted EPS estimate to reflect the stronger 2Q. Our 2022 AEBITDA estimate is up $3M to $159M. We believe a combination of higher pricing, price pack architecture, trade efficiencies and COGS productivity initiatives will continue to offset the current inflation expectations and look for 2023 margins to begin to normalize. Long-term investors should be focused on UTZ’s revenue outlook which remains robust both in the near and longer-term with above-category growth expected from continued geographic expansion, new customers, new subcategories and stronger channel penetration. We continue to expect its three-year sales CAGR to remain at a MSD rates, at least consistent with the category and strong outperformance in its power brands. Our new $19PT reflects our updated DCF analysis driven by a slightly higher FCF assumption in 2022 and 2023.

08-11-2022

ChromaDex Corporation   (CDXC $2.06)
Rating: Outperform Price Target: $10
2Q22 Revenue Disappoints—Pausing TV Ad Campaign—Solving For Profitability—Maintain Outperform Rating—Lower PT to $10

We maintain our Outperform rating and lower our price target to $10 (from $11) on the shares of ChromaDex Corporation (CDXC). 2Q22 revenue declined 5% and was below our forecast due to a slower e-commerce growth rate (+13%) and lower sales to Watsons (timing) and international partners (continued COVID headwinds, slower new product ramp). We remain positive on the company’s international partner growth but it has developed slower than expected. CDXC lowered 2022 sales guidance to high single-digits (from 15-20%) as it accounts for slower international sales against a backdrop of steady (14%) e-commerce growth. CDXC is pausing its new TV advertising campaign to focus on more immediate and higher investment returns in its digital advertising. CDXC is focused on achieving breakeven on a cash flow basis by 4Q22 and the TV spend, while a key element in longer-term brand building, will create a higher breakeven hurdle rate. At this point, we believe solving for profitability is paramount. We believe CDXC will be able to fund future TV ad spending once it begins to see a more meaningful incremental contribution from its international partners, including Watsons. We continue to view CDXC’s growth of attractive ingredient partnerships with quality, multinational nutritional health companies such as Sinopharm, H&H, Ro, Designs for Health and Nestle (NSRGY-$121.34, Not Rated) as evidence of NR’s sizeable potential from those that are deep into the science. CDXC’s e-commerce growth has been driven by strong recurring customer revenue, a sign of the strength of the Tru Niagen brand and the supporting science. While we believe the stock has an attractive risk/reward profile at current levels, we believe the cash burn and perceived risk of a potential equity offering limits the near-term upside in the name.  

08-08-2022

Mistras Group, Inc.    (MG $6.62)
Rating: Outperform Price Target: $17
End Markets Showing Momentum—Margins Stable to Improving—Attractive Risk/Reward—Maintain Outperform and $17PT

We reiterate our Outperform rating and $17 price target on the shares of Mistras Group (MG). 2Q22 EPS results were slightly below forecast despite exceeding our revenue estimate (+3% ex FX) due to higher healthcare costs and sales mix. The good news in the quarter was the strong growth of the Aerospace & Defense segment (+15%) and the continued outlook for customer demand strength in both the commercial aerospace and private space flight sector. Recent capital investments in its Georgia facility will enable the company to shorten cycle times for aerospace customers and win additional business given the improved efficiencies for its customers. The Oil and Gas segment continues to recover and could have had a stronger quarter but record crack spreads caused refiners to maximize capacity utilization at the expense of the spring turnaround cycle. The Oil & Gas segment is having a strong start to Q3 and management expects solid revenue growth for 2H22. We remain encouraged by the expansion of its OneSuite software ecosystem which should lead to greater customer penetration -- and Sensoria, its wind turbine monitoring system which we believe has significant growth prospects as wind energy expands. We lower our 2022 EPS estimate to $0.33 (from $0.36) mostly to reflect the lower 2Q22 results and a higher Q3 and lower Q4. MG reaffirmed its full year 2022 revenue ($695-715M) and AEBITDA ($65-69M) guidance suggesting some confidence in its end markets and customer demand.

08-05-2022

MGP Ingredients, Inc.   (MGPI $107.03)
Rating: Outperform Price Target: $115
Continued Strength in All Segments Drives 2Q22 Beat—Raising Estimates—Maintain Outperform Rating—Raise PT to $115

We maintain our Outperform rating and raise our price target to $115 (from $104) on the shares of MGP Ingredients (MGPI). 2Q22 results were well ahead of our estimates as continued strong demand for American whiskey, both aged and new distillate, along with the premiumization trend in Branded Spirits and continued demand for plant-based proteins and higher fiber ingredients in the Ingredient Solutions segment drove the favorable results. We remain confident in MGPI’s robust growth drivers and believe the positive growth trends have meaningful headroom. Demand for aged whiskey accelerated during the pandemic and we expect the supply shortage in the industry will remain for several years, particularly for longer aged product, and believe pricing for MGPI’s aged inventory will remain favorable. The Branded Spirits segment is well-positioned, particularly in the premium subcategories which have sustained strong demand post-pandemic and we expect the trends to continue. The Ingredient Solutions segment is driven by consumer demand for plant-based proteins, high fiber and low carb foods, trends that remain robust. The key factor in MGPI’s growth drivers is all should contribute to incrementally higher margins. We raise our 2022 estimate to reflect the strong 2Q and a higher outlook for 2H22 despite the margin pressure expected in the industrial alcohol and white goods segment. Our new EBITDA estimate is $159M (from $157M). We lower our 2023 EBITDA estimate to $167M (from $172M) to reflect continued margin pressure in the white goods and industrial alcohol segments.

06-03-2022

Calavo Growers, Inc. (CVGW $33.19)
Rating: Marketperform Price Target: $40
Improved 2Q Driven By Strong Avocado Margins—RFG Improving Slowly—Lower PT to $40—Maintain Marketperform Rating

We maintain our Marketperform rating and lower our price target to $40 (from $44) on the shares of Calavo Growers, Inc. (CVGW). 2Q22 results were better than expected as strong avocado margins due to a rising price environment lifted margins above historical levels despite a 13% volume decline. We see progress in the RFG segment which is encouraging and expect slow but steady gains throughout the year due to improving labor productivity, higher pricing and fixed cost leverage. RFG was bought by CVGW in 2011 with the idea that RFG would diversify its business away from avocados with a complementary and higher margin revenue stream. RFG has contributed nicely to revenue growth but gross margins were continuously affected by various headwinds with margins peaking at 9% level in FY15 and on a continuous downtrend since then. Management’s expectations for RFG to be at an annual gross margin run rate of 10%+ by the end of FY23 is a positive, but we have not modeled that level of improvement as we remain cautious on this segment’s volatile input costs and operational complexity. As much as we are encouraged by a 10%+ gross margin target, on an absolute basis, 10% leaves little room for error. CVGW continues forward with its Project Uno which is expected to deliver $70M of savings ($13M to date), essentially returning CVGW back to its FY19 profit levels, mostly likely by FY25. The avocado market remains out of balance with low supplies causing lower sales volumes but CVGW maintained market share in this difficult operating environment. Management was optimistic that the avocado industry could regain some normalcy in July as the Mexico crop develops and as Jalisco avocados begin to help supply. We raise our FY22 EPS estimate to $1.07 (from $1.03) to reflect the stronger than expected 2Q. We lower our FY23 EPS estimate to $2.00 (from $2.15) reflecting a more cautious avocado revenue and margin outlook.

05-23-2022

Flower Foods, Inc. (FLO $26.50)
Rating: Outperform Price Target: $31
1Q22 Sales & EPS Above Forecast—Higher Input Costs Will Pressure Q2 & Q3—Lower 2022 Est. — Maintain Outperform Rating and $32PT

We maintain our Outperform rating and our $32 price target on the shares of Flowers Foods, Inc. (FLO). 1Q22 adjusted EPS and sales results exceeded our forecast on strong branded sales growth (+10%) offset by expected gross margin pressure. 2022 EPS guidance was lowered due to incremental input cost increases which will hurt Q2 and Q3 by about $0.05 combined. A June price increase will help begin to offset the cost pressure in Q3 but we remain concerned in the near-term that consumer purchasing pressure across the spectrum could cause some modest trade down to private label despite price elasticities that are holding up well. The good news for FLO is that consumers increasingly prefer higher quality and higher value-added breads that store brands do not offer and we only see potential store brand growth in a scenario of significant consumer financial hardship.  From a margin perspective, FLO has 95% of its 2022 commodity costs hedged although at higher prices than expected at the beginning of the year. We lower our 2022 EPS estimate by $0.07 as we adjust for a higher sales forecast offset by a lower margin outlook with Q2 and Q3 having the most margin pressure. Our 2023 EPS estimate remains $1.42. FLO remains among the best performing consumer staples stocks over the past 12 months despite being an under-the-radar name in staples. We believe FLO will continue to benefit from the steady gains branded bread has incurred at the expense of zero-margin store brands and expect FLO’s “bakery of the future” implementation to improve fixed asset utilization that should contribute to an improved margin profile over the next several years.

05-13-2022

UTZ Brands, Inc. (UTZ $13.38)
Rating: Outperform Price Target: $18
Strong 1Q22 Revenue Growth—Margins Remain Under Pressure But Have Bottomed—Maintain Outperform—Lower PT to $18

We maintain our Outperform rating and lower our price target to $18 (from $23) on the shares of Utz Brands, Inc. (UTZ).  1Q22 results were better than expected driven by strong revenue growth (+27%) and better-than-expected margins as it appears margins have largely bottomed though not out of the woods yet. UTZ gained share in the salty snack category as its power brands outperform (+22% YoY), particularly in its core markets. Also contributing to the growth is expanded distribution in expansion markets along with new customers. Management upped its input cost inflation estimate from DD growth to mid-to-high teens increases but expects several rounds of price increases (current and future) along with productivity gains to offset the known pressures. Despite the high prices, UTZ noted that demand remains strong, a testament to the strength of an advantaged consumer staples category. We lower our 2022 adjusted EPS estimate to reflect a more cautious outlook for the remaining quarters although we are more focused on AEBITDA as a better measure of performance. Our 2022 AEBITDA estimate is up $2M to $156M.  We believe a combination of higher pricing, price pack architecture, trade efficiencies and COGS productivity initiatives will offset the current inflation expectations and look for 2023 margins to begin to normalize. Long-term investors should be focused on UTZ’s revenue outlook which remains robust both in the near and longer-term with above-category growth expected from continued geographic expansion, new subcategories (i.e. tortilla chips) and stronger channel penetration (i.e. mass, club). We continue to expect its two-year sales CAGR to remain at a MSD rates, at least consistent with the category and strong outperformance in its power brands.  Our new $18PT reflects our updated DCF analysis driven by slightly lower FCF assumption in 2022 and a higher WACC.  Our DCF assumes a 5-year sales CAGR of 8% and EBITDA CAGR of 13%, levels that are aggressive but likely beatable with continued M&A. 

05-13-2022

ChromaDex Corporation (CDXC $1.64)
Rating: Outperform Price Target: $11
1Q22 Revenue Growth Solid Despite Headwinds—Positive Early Read From New TV Ads—Maintain Outperform Rating—Lower PT to $11

We maintain our Outperform rating and lower our price target to $11 (from $13) on the shares of ChromaDex Corporation (CDXC). 1Q22 revenue growth of 17% was 3% below our forecast due to a slower e-commerce growth rate (+14%) and lower ingredient sales (-8%). 2022 sales guidance of 15-20% growth remains unchanged. CDXC international sales remain challenged as continued COVID restrictions have slowed both sales growth and new product launches, but we remain confident in stronger international contributions as the pandemic is distanced. Most importantly, management had positive commentary around the new TV advertising campaign which has generated increased website visits and conversion rates in the time periods measured following the advertising spots. It is still early in the ad campaign but we have noticed improved rankings at Amazon.com since the new TV ads began which could be a positive for 2Q sales. Tru Niagen’s consumer awareness has lagged far behind the scientific momentum of NR/NAD+ and believe the shift from pure digital marketing to a broader brand building effort is the right strategy. We continue to view CDXC’s growth of attractive ingredient partnerships with quality, multinational nutritional health companies such as Sinopharm, H&H, Ro, Designs for Health and Nestle (NSRGY-$121.16, NR) as evidence of NR’s sizeable potential from those that are deep into the science. We continue to expect revenue from these partners could begin to accelerate in 2H22 though this is not factored into our estimates. CDXC’s leads in the science around NAD+, has first rate partnerships, strong revenue growth and has a clean balance sheet to support further growth.

05-09-2022

Prestige Consumer Healthcare, Inc.  (PBH $54.88)
Rating: Outperform Price Target: $67
4Q22 Results Exceed Forecast—Lower FY23 Estimate on Higher Interest Expense— Maintain Outperform Rating — Lower PT to $67

We maintain our Outperform rating and lower our price target to $67 (from $75) on the shares of Prestige Consumer Healthcare (PBH). 4Q22 revenue and EPS exceeded our expectations (see Figure 1) as strong consumption growth continued in GI, dermatological and cough and cold segments. PBH margins are expected to remain strong as higher pricing should offset higher supply chain costs. Management expects FY23 organic growth in the 2-3% range and 3-4% including the incremental revenue from its Akorn acquisition. We believe our FY23 revenue growth estimate of 2% conservative. PBH has a number of line extensions and updated brand messaging across its product lines, but particularly in the GI (Dramamine), eye care (Clear Eyes, TheraTears), dermatological (Compound W) and women’s health (Summer’s Eve) segments and believe these could be a modest source of upside in FY23. We lower our FY23 EPS estimate to $4.20 (from $4.27) to reflect higher interest expense and some conservatism. We establish a FY24 estimate of $4.52, up an implied 8%. We maintain our view that PBH’s business model and solid execution can deliver LSD-MSD organic growth over the long-term with a stable margin profile that delivers meaningful free cash flow (FCF yield of 21%) to support further value-creating M&A growth. Over the next year, we expect PBH to reduce leverage although there is still ample capacity to do a $275-300M transaction while remaining in a comfortable leverage range (<4.0x). Our new $67PT is derived from our updated DCF analysis which incorporates a higher WACC due to the rising interest rates, implying a forward EV/EBITDA multiple of 12.3x (5-yr avg 11.4x).

05-06-2022

MGP Ingredients, Inc.   (MGP $96.42)
Rating: Outperform Price Target: $104
1Q22 Exceed Estimates—Strength in All Segments—Raising Estimates—Maintain Outperform Rating—Raise PT to $104

We maintain our Outperform rating and raise our price target to $104 (from $96) on the shares of MGP Ingredients (MGPI). 1Q22 results were far ahead of our estimate as continued strong demand for American whiskey, both aged and new distillate, along with continued strength in the Ingredient Solutions segment drove the favorable results. We remain confident in MGPI’s robust growth drivers and believe the positive growth trends have meaningful headroom. Demand for aged whiskey accelerated during the pandemic and we expect the supply shortage in the industry will remain for several years, particularly for longer aged product, and believe pricing for MGPI’s aged inventory will remain favorable. The Branded Spirits segment is well positioned, particularly in the premium subcategories which have sustained strong demand post-pandemic and expect the trends to continue. The Ingredient Solutions segment is driven by consumer demand for plant-based proteins, high fiber and low carb foods, trends that remain robust. The key factor in MGPI’s growth drivers is all should contribute to incrementally higher margins. We raise our 2022 estimates to reflect the strong 1Q but have reduced modestly our expectations for the remaining three quarters, in part to reflect the potential for some of 1Q’s strength to have borrowed from ensuing quarters, and part conservatism. Our new EBITDA estimate is $157M (from $153M). We raise our 2023 EBITDA estimate to $172M (from $166M). MGPI is confident in the longer-term outlook as evidenced by 2022 capital investments increasing capacity in all three operating segments. Meanwhile, the company’s balance sheet provides for additional growth in the form of branded spirits M&A which is hard to time but the opportunities are plentiful.

05-05-2022

Fresh Del Monte Produce, Inc. (FDP $24.75)
Rating: Outperform Price Target: $35
1Q22 Beats Forecast—Still Cautious on 2022—LT Earnings Power Intact—Maintain Outperform and $35PT

We maintain our Outperform rating and $35 price target on the shares of Fresh Del Monte Produce, Inc. (FDP). 1Q22 results were down YoY but well ahead of our conservative forecast. Sales were up 4%, driven by pricing, but gross profit fell 16% due to higher input and supply chain costs. We expect FDP’s price increases should catch up to inflationary pressures in 3Q but this will depend on a rational global competitive environment, which it has been thus far in 2022. FDP’s business has struggled to regain its footing since the pandemic’s start and the Ukraine/Russia war has further complicated matters due to excess banana supplies from Ecuador (exporter to Ukraine/Russia) and continued global freight and transportation inefficiencies. The quarter was helped by the company’s new higher margin revenue stream from back-haul commercial ocean freight cargo, adding $20M in revenue and $3M in incremental gross profit. In all, the last two years of global disruption has affected FDP more than the average consumer staple company due to the higher variability in a low-value added agricultural-based business. While FDP continues to move and diversify its business toward higher value-added products and services, the business is still influenced heavily by agricultural industry shocks of all kinds, particularly given the company’s diverse product line and geographic spread. That said, we remain confident that FDP’s continued investment in automation, the addition of new fresh-cut facilities, new refrigerated container vessels and a focus on profitable volume will ultimately improve the margin profile, predictability, and cash flow generation.

05-05-2022

Mistras Group, Inc. (MG $5.99)
Rating: Outperform Price Target: $17
End Markets Improving—Aerospace Recovery Expected In 2H—Attractive Risk/Reward—Maintain Outperform and $17PT

We reiterate our Outperform rating and $17 price target on the shares of Mistras Group (MG). 1Q22 results EPS results were below forecast despite matching our revenue estimate (+5%) due to higher healthcare costs and sales mix. The oil and gas segment continues to recover aided by stronger energy prices and we expect continued strength in 2022. Aerospace and defense revenue was up 24% in the quarter but remains about 25% below its pre-pandemic quarterly high in 1Q19. Management indicated aerospace customers are anticipating strong demand in 2H22. If this comes to fruition, MG could have some earnings upside in 2H22, particularly given the higher margins in this segment. MG continues to show nice growth in its private space flight revenue and the outlook is strong, particularly given its leadership in this sector that continues to streamline its supply chain. We also are encouraged by the expansion of its OneSuite software ecosystem which should lead to greater customer penetration -- and Sensoria, its wind turbine monitoring system which we believe has significant growth prospects as wind energy expands. We lower our 2022 EPS estimate to $0.36 (from $0.44) mostly to reflect the lower 1Q22 results - otherwise, our 2022 are largely unchanged and reflect a nice recovery year in both revenue and EBITDA despite some modest margin pressure as SG&A spending returns to pre-pandemic levels.

03-15-2022

Calavo Growers, Inc. (CVGW $34.96)
Rating: Marketperform Price Target: $44
Modest Improvement in 1Q—Lower FY22 and FY23 Estimates—Lower PT to $44—Maintain Marketperform Rating

We maintain our Marketperform rating and lower our price target to $44 (from $53) on the shares of Calavo Growers, Inc. (CVGW). 1Q22 results were weaker than expected despite the stronger revenue. Higher avocado prices drove the revenue beat but hurt margins in the Fresh and Foods segments. RFG revenue was up 6% despite slightly lower volumes but profitability remains elusive due to higher labor costs, labor inefficiency, higher freight and higher input costs. Additionally, RFG margins were affected by inefficiencies created as it moves its Jacksonville volume to its Georgia facility. CVGW continues forward with its Project Uno ($30M cost) which is expected to deliver $70M of profit recovery from current levels ($9M to date) which is essentially returning CVGW back to its FY19 profit levels, mostly likely by FY24. The avocado market remains out of balance and creates a difficult operating environment with volumes down 12% and pricing up 64% in 1Q. We expect a similar market environment in 2Q and but could regain some footing in mid-July as Jalisco avocados begin to help supply by mid-2022.

For full access to research report contact Mitchell B. Pinheiro, CFA, Senior Vice President, Director of Research mpinheiro@sturdivant-co.com

03-11-2022

Mistras Group, Inc. (MG $6.32)
Rating: Outperform Price Target: $17
Recovery To Continue in 2022—Energy Market Strength Adds Confidence—Maintain Outperform and $17PT

We reiterate our Outperform rating and $17 price target on the shares of Mistras Group (MG). 4Q21 results were mostly better than expected as revenue exceeded our forecast while AEBITDA was in-line. The oil and gas segment continues its recovery aided by stronger energy prices and we expect continued strength in 2022 although 1Q22 will be negatively affected by refiners choosing to delay spring turnaround inspections and other projects into 2Q22 and 2H22 given the current strong energy margins. Aerospace and defense revenue should grow in 2022 despite continued weakness in the commercial aerospace segment. We lower our 2022 EPS estimate to $0.44 (from $0.52) mostly to reflect a lower 1Q22 estimate due to the delays in the spring turnaround season. Otherwise, 2022 should be a nice recovery year in both revenue and EBITDA despite some margin pressure as SG&A spending returns to pre-pandemic levels. Management refrained from providing full year 2022 guidance given the Russia/Ukraine war’s effect on the global energy markets but remains confident in its end markets and FCF generation.

For full access to research report contact Mitchell B. Pinheiro, CFA, Senior Vice President, Director of Research mpinheiro@sturdivant-co.com

03-07-2022

UTZ Brands, Inc.  (UTZ $13.56)
Rating: Outperform Price Target: $23
Input Costs and Pricing Lags Lead to A Back-end Loaded 2022 With Modest Growth—Maintain Outperform And $23PT

We maintain our Outperform rating and $23 price target on the shares of Utz Brands, Inc. (UTZ). 4Q21 results missed both our revenue and EBITDA estimates owing mostly to a lower gross margin. 2022 guidance calls for 7-10% sales growth, modest YoY EBITDA growth with a quarterly cadence more back-end weighted. UTZ has had an understandably difficult time getting ahead of the inflationary pressures (raw materials, labor, freight-in) and pricing offsets, all which led to a string of estimate reductions in 2021 and now, a tepid 2022 profit outlook that should not allow for a repeat of 2021. However, the key to the UTZ story is revenue growth and UTZ has delivered on this key metric with core organic sales growth of 8.9% in 4Q21 and an outlook of 4%-6% organic growth in 2022 (largely from pricing). Margins will decline in 2022 as pricing efforts lag input cost increases and further cost increases that could emanate from the Ukraine/Russia conflict are not factored into guidance or our estimates. Concerns surrounding UTZ’s margins remain reasonable under a short-term horizon but clearly overblown in the long-term where we expect the company’s margins to fully normalize and potentially emerge stronger as inflationary pressures diminish.

For full access to research report contact Mitchell B. Pinheiro, CFA, Senior Vice President, Director of Research mpinheiro@sturdivant-co.com

02-25-2022

MGP Ingredients, Inc. (MGPI $80.11)
Rating: Outperform Price Target: $96
4Q21 Exceed Estimates—American Whiskey Demand Remains Strong— Maintain Outperform Rating—Raise PT to $96

We maintain our Outperform rating and raise our price target to $96 (from $84) on the shares of MGP Ingredients (MGPI). 4Q21 EPS, AEBITDA, and revenue exceeded our forecast driven by continued strong demand for American whiskey, both aged and new distillate, along with continued strength in the Ingredient Solutions segment. We expect MGPI’s key growth drivers to remain intact in 2022 -- continued strength in aged whiskey sales, growth in its Branded Spirits segment, particularly its premium and ultra premium subcategories and strong demand in its Ingredient Solutions segment driven by consumer demand for plant-based proteins, high fiber and low carb foods. While EPS comparisons will be down due to the higher share count, our estimates assume an 8% increase in EBITDA and we believe our estimates have upside -- but given the tough comparisons and low visibility, we prefer to remain conservative in our estimates. Our new 2022 EPS estimate is $3.95 (from $3.75) and we raise our 2023 EPS estimate to $4.58 (from $4.00).

For full access to research report contact Mitchell B. Pinheiro, CFA, Senior Vice President, Director of Research mpinheiro@sturdivant-co.com

02-24-2022

Fresh Del Monte Products, Inc. (FDP $25.46)
Rating: Outperform Price Target: $35
4Q21 Pressured by Supply Chain Costs—Cautious on 1H22—LT Earnings Power Intact—Maintain Outperform—Lower PT to $35

We maintain our Outperform rating and reduce our price target to $35 (from $40) on the shares of Fresh Del Monte Produce, Inc. (FDP). 4Q21 results were below our forecast as supply chain inflation and labor availability strained margins more than anticipated. FDP has instituted price increases across its product line -- we estimate about 5-7% -- but price increases in the global produce industry are difficult to count on holding. We expect the price increases will lag the cost inflation and inefficiencies and should catch up in 2Q but this will depend on a rational global competitive environment. FDP has always been a rational competitor in the marketplace and expect it to remain focused on profitable volume growth. Looking out two-to-three years, we are confident that FDP’s continued investment in automation, the addition of new fresh-cut facilities, new refrigerated container vessels and a focus on profitable volume will ultimately improve the margin profile and predictability of this business and cash flow generation.

For full access to research report contact Mitchell B. Pinheiro, CFA, Senior Vice President, Director of Research mpinheiro@sturdivant-co.com

02-14-2022

Flowers Foods, Inc. (FLO $27.93)
Rating: Outperform Price Target: $32
4Q21 Sales Beat/EPS In-line—Input Costs/Pricing Cadence Creates 2H-Loaded 2022 —Maintain Outperform Rating— Raise PT to $32

We maintain our Outperform rating and raise our price target to $32 (from $30) on the shares of Flowers Foods, Inc. (FLO). 4Q21 adjusted EPS results matched our forecast with sales stronger than expected and margins slightly below our estimate. Initial 2022 sales guidance was stronger than expected (+7.6-8.4%) while the EPS range (+1-9%) is a wider growth rate range driven by the potential for higher input costs and consumer price elasticity risk on the lower end, to more stable input costs on the higher end. Sales growth looks strong and is off to a good start in 2022 with HSD pricing driving the growth and units holding strong. FLO has been among the best performing consumer staples stocks over the LTM despite tepid sell-side enthusiasm. FLO’s 2022 outlook remains well above the food group’s consensus EPS and sales growth estimates of 5% and 3%, respectively.

For full access to research report contact Mitchell B. Pinheiro, CFA, Senior Vice President, Director of Research mpinheiro@sturdivant-co.com

02-04-2022

Prestige Consumer Healthcare, Inc.  (PBH $61.34)
Rating: Outperform Price Target: $75
3Q22 Results Exceed Forecast Again On Strong Consumption Trends— Maintain Outperform Rating — Raise PT to $75

We maintain our Outperform rating and raise our price target to $75 (from $72) on the shares of Prestige Consumer Healthcare (PBH). 3Q22 revenue and EPS exceeded our expectations as strong consumption growth across the portfolio, and in particular, in its pandemic-affected categories, drove the 15% YoY revenue increase. Cost inflation was the primary cause of the 170bp decline in gross margin, though better than we had forecast. Management noted that it has implemented higher pricing in the majority of its portfolio and we anticipate these increases to be in the mid-to-high single digit range in the categories affected by higher supply chain and input costs. Based on the updated company guidance for the full year, we are lowering our 4Q22 EPS estimate to $0.87 (from $0.91) to account for continued supply chain pressures with a lower gross margin assumption. That said, our full year FY22 EPS estimate is up to $4.01 (from $3.96) to reflect the 3Q beat.

For full access to research report contact Mitchell B. Pinheiro, CFA, Senior Vice President, Director of Research mpinheiro@sturdivant-co.com

01-06-2022

Landec Corporation (LNDC $10.65)
Rating: Marketperform Price Target: $20
Lifecore Results Exceed Forecast—Estimates Reflect Our Pro Forma Outlook—Maintain Outperform Rating and $20PT

We maintain our Outperform rating and our $20 price target on the shares of Landec Corporation (LNDC). LNDC’s quarter was better than expected from a Lifecore perspective which at this point is our only focus. Curation’s remaining business generally performed in-line with expectations. We continued to expect LNDC to sell its remaining businesses -- the Yucatan guacamole business, O Olive, and its BreathWay technology licensing business -- reasonably quickly. For analysis sake, our estimates and valuation assume that by the end of FY22 (May), Lifecore will represent 100% of LNDC with the remaining businesses sold for $65M which would leave Lifecore with roughly $30M in debt (up from $20M). We remind readers that our FY23 estimates (and beyond) now reflect pure Lifecore. We lower our FY23 EPS estimate to $0.52 (from $0.53) to reflect some minor adjustments.

For full access to research report contact Mitchell B. Pinheiro, CFA, Senior Vice President, Director of Research mpinheiro@sturdivant-co.com

12-28-2021

Landec Corporation (LNDC $11.14)
Rating: Marketperform Price Target: $20
A Closer Look at Lifecore—New Estimates Reflect Our Pro Forma Outlook—Maintain Outperform Rating—Raise PT to $20

We maintain our Outperform rating and raise our price target to $20 (from $16) on the shares of Landec Corporation (LNDC). In this report, we take a closer look at the Lifecore Biomedical business which will ultimately be the surviving entity at Landec as the company sells its remaining food assets. Lifecore has always been the gem within LNDC but it’s a small part of the mix and investors have always wondered aloud why a salad and vegetable business was paired with a polymer-based biomedical operation. Over the past several years, Lifecore has been the stable and growing segment within LNDC and while its growth and margin profile was appreciated by a small audience of investors, the volatile and low margin salad and vegetable business was a non-starter for any investor truly interested in Lifecore and its growing presence in the attractive CDMO marketplace. The sale of Curation’s salad and vegetable business on 12/13/21 (net proceeds of $68M) was the latest step in a multi-year process to unwind the non-Lifecore assets and de-leverage the balance sheet. We expect LNDC to sell its remaining businesses -- the Yucatan guacamole business, O Olive, and its BreathWay technology licensing business -- and expect this to happen reasonably quickly.

For full access to research report contact Mitchell B. Pinheiro, CFA, Senior Vice President, Director of Research mpinheiro@sturdivant-co.com

11-22-2021

MGP Ingredients, Inc. (MGPI $74.24)
Rating: Outperform Price Target: $84
Investor Day Takeaways—Maintain Outperform Rating and $84PT

We maintain our Outperform rating and $84 price target on the shares of MGP Ingredients (MGPI). We attended the company’s investor day held 11/18/21 in Bardstown, KY at the home of recently acquired Lux Row Distillery, Luxco’s flagship distillery. While we went into the investor day positive on the transformative impact of the Luxco business for MGPI, we came away with a new appreciation for the meaningful value that the Luxco/MGPI combination can deliver -- and it is not the result of our consumption of the generous bourbon tastings offered. In our view, Luxco’s (now the Branded Spirits segment) core competency, is its sales, marketing and distribution power buttressed by an experienced and highly credible management team with long and deep relationships with distributors, very important in this highly regulated and tightly controlled beverage alcohol industry.

For full access to research report contact Mitchell B. Pinheiro, CFA, Senior Vice President, Director of Research mpinheiro@sturdivant-co.com

11-05-2021

Fresh Del Monte Produce, Inc. (FDP-$28.85)
Rating: Outperform Price Target: $40
3Q21 EPS Miss Forecast on Supply Chain Inflation —LT Earnings Power Unaffected—Maintain Outperform Rating-- Lower PT to $40

We maintain our Outperform rating and reduce our price target to $38 (from $42) on the shares of Fresh Del Monte Produce, Inc. (FDP). 3Q21 results were well below our forecast ($0.01 vs. $0.25 est) -- the reasons for the decline were known but we underestimated the extent of the supply chain infla-tion. Management cited “unprecedented” inflationary pressures across the supply chain (strained transportation capacity, labor availability, and other cost pressures) and exacerbated by the seasonally slower 3Q (lower volumes, lower asset utiliza-tion).

For full access to research report contact Mitchell B. Pinheiro, CFA, Senior Vice President, Director of Research mpinheiro@sturdivant-co.com

11-04-2021

Mistras Group, Inc.  (MG-$9.56)
Rating: Outperform Price Target: $17
Revenue Recovery Trend Maintained in 3Q —Expect Momentum to  Continue in 2022—Maintain Outperform—Raising PT to $17

We reiterate our Outperform rating and raise our price target to $17 (from $16) on the shares of Mistras Group (MG). 3Q21 results were mostly better than expected as revenue and EBITDA were above forecast despite lower than expected gross profit. The Oil & Gas segment was aided by the stronger energy markets despite headwinds from hurricane dis-ruptions. Aerospace and defense remains a soft spot as the commercial aero-space segment recovers slowly - private space flight revenue has been a bright spot (>20% growth) in that segment.

For full access to research report contact Mitchell B. Pinheiro, CFA, Senior Vice President, Director of Research mpinheiro@sturdivant-co.com

11-04-2021

ChromaDex Corporation (CDXC-$6.55)
Rating: Outperform
Price Target: $17
Solid 3Q Performance — Marketing Spending to Ramp in 2022 —
Maintain Outperform Rating and $17PT

We maintain our Outperform rating and $17 price target on the shares of ChromaDex Corporation (CDXC). 3Q21 revenue was slightly above our forecast while the key e-commerce channel was slightly below our estimate. Total sales continued to show strength, up 22% YoY growth and e-commerce increased 21%, driven by equal parts of new customers and recurring revenue growth.

For full access to research report contact Mitchell B. Pinheiro, CFA, Senior Vice President, Director of Research mpinheiro@sturdivant-co.com

11-05-2021

Prestige Consumer Healthcare, Inc. (PBH-$61.64)
Rating: Outperform
Price Target: $72
2Q22 Results Exceed Forecast on Strong Consumption— Maintain
Outperform Rating — Raise PT to $72

We maintain our Outperform rating and raise our price target to $72 (from $63) on the shares of Prestige Consumer Healthcare (PBH). 2Q22 revenue and EPS exceeded our expectations and guidance was raised due to continued strong consumption trends across its portfolio. Additionally,

management noted higher customer orders that likely are intended to mitigate the potential for out-of-stocks as supply concerns permeate retailers’ re-orders. The near-term sales outlook remains strong as products such asDramamine, Hydralyte, Ludens, Chloraseptic, Nix and Clear Eyes rebound

back to more normal demand levels as pre-pandemic behaviors return.

For full access to research report contact Mitchell B. Pinheiro, CFA, Senior Vice President, Director of Research mpinheiro@sturdivant-co.com

11-12-2021

Utz Brands, Inc. (UTZ-$17.25)
Rating: Outperform Price Target: $26
Revenue Growth Remains Robust—Margins Pressured But Manageable—Maintain Outperform and $26PT

We maintain our Outperform rating and $26 price target on the shares of Utz Brands, Inc. (UTZ). 3Q21 revenue exceeded our estimate while the adjusted EBITDA of $45M was $2M higher than our re-cently reduced estimate. Adjusted EPS of $0.18 was $0.05 above our esti-mate. While cost inflation and supply chain disruptions pressured margins in the quarter, the highlight was clearly the strong sales performance -- UTZ outperformed the salty snack category as well as in most subcategories and in all sales channels.

For full access to research report contact Mitchell B. Pinheiro, CFA, Senior Vice President, Director of Research mpinheiro@sturdivant-co.com

11-15-2021

Flowers Foods, Inc. (FLO-$26.05)
Rating: Outperform
Price Target: $30
Branded Revenue Drives 3Q Strength—Raise 2021 and 2022
Estimates—Maintain Outperform Rating— Raise PT to $30

We maintain our Outperform rating and raise our price target to $30 (from $28) on the shares of Flowers Foods, Inc. (FLO). 3Q21 adjusted EPS results were $0.06 ahead of forecast due to stronger-thanexpected branded sales and margins relative to our forecast.

For full access to research report contact Mitchell B. Pinheiro, CFA, Senior Vice President, Director of Research mpinheiro@sturdivant-co.com

11-22-2021

MGP Ingredients, Inc. (MGPI-$74.24)
Rating: Outperform
Price Target: $84
Investor Day Takeaways—Maintain Outperform Rating and $84PT

We our Outperform rating and $84 price target on the shares of  MGP Ingredients (MGPI). We attended the compa-ny’s investor day held 11/18/21 in Bardstown, KY at the home of recently acquired Lux Row Distillery, Luxco’s flagship distillery. While we went into the investor day positive on the transformative impact of the Luxco business for MGPI, we came away with a new appreciation for the meaningful value that the Luxco/MGPI combination can deliver -- and it is not the result of our consumption of the generous bourbon tastings offered. In our view…

For full access to research report contact Mitchell B. Pinheiro, CFA, Senior Vice President, Director of Research mpinheiro@sturdivant-co.com

10-11-2021

The Sturdivantage Volume 1.10 10112021
Company Updates – 3 Year Gross Margin Performance – Commodity Cost
Update – Rankings

For full access to research report contact Mitchell B. Pinheiro, CFA, Senior Vice President, Director of Research mpinheiro@sturdivant-co.com