Snack and meal replacement producer Simply Good Foods (NASDAQ:SMPL) recently announced earnings results that exceeded expectations for Q3 FY2024 on the strength of its popular Quest and Atkins brands. The company also added one of the fastest-growing ready-to-drink (RTD) protein shakes to its portfolio with a successful acquisition, adding to its future growth potential.
The stock is up over 12% in the past 90 days and looks reasonably priced, given the company’s growing revenues and impressive margins. It is an appealing option for investors looking for exposure to consumer defensive stocks.
Simply Good Foods Expands its Portfolio
Simply Good Foods is a consumer-packaged food and beverage company that develops, markets, and sells snacks and meal replacements. These products are distributed across multiple retail channels encompassing mass merchandise, grocery and drug channels, club stores, convenience stores, gas stations, and e-commerce sites.
The company recently took significant strides in expanding and diversifying its product portfolio by acquiring OWYN, a top plant-based RTD protein shake brand. This acquisition of the fastest-growing brand in the protein shake market further solidified Simply Good Foods’ position in the nutritious snacking category.
The global healthy snacks market is anticipated to grow at a CAGR of 6% to reach $111.8 billion by 2030.
Simply Good Foods’ Recent Financial Results & Outlook
Simply Good Foods has released its third-quarter results for 2024. The company’s revenue of $334.76 million marked a year-over-year increase of $10 million, or 3.1%, though it fell slightly short of analysts’ estimates of $337.66 million. North America’s net sales increased by 3.2%, while international net sales dropped by 2.4% compared to last year.
Gross profit amounted to $133.6 million, a $14.4 million increase from last year. The gross margin rose by 320 basis points, from 36.7% to 39.9%, owing to decreased ingredient and packaging expenses. The company’s adjusted EBITDA stood at $71.9 million, an improvement from the previous year’s $66.6 million figure. Earnings per share were $0.50, exceeding analysts’ estimates of $0.48.
The cash balance at the end of Q3 2024 was $208.7 million, and the year-to-date operating activities provided $166.8 million in cash, reflecting a significant increase of 50% from the previous year. The company reported a term loan debt of $240 million as of May 25, 2024, related to the OWYN acquisition.
Management has issued guidance for the fourth quarter of Fiscal year 2024. Quest and Atkins’ retail performance is expected to rise to the mid-point of the company’s 4-6% long-term prediction. OWYN net sales will likely be $25-30 million for the rest of the fiscal year. The 2024 Adjusted EBITDA, including OWYN, is predicted to rise to around 8%, up from the previously estimated 6%.
What Is the Price Target for SMPL Stock?
Analysts following the company have been cautiously optimistic about the stock. For instance, DA Davidson analyst Brian Holland recently raised the price target on the shares from $35 to $38 while keeping a Neutral rating. He noted the positive impact of the recent OWYN acquisition, though he is looking for the firm to demonstrate its ability to stabilize the Quest and Atkins brand.
Simply Good Foods is rated a Moderate Buy overall, based on the recommendations and price targets recently issued by seven analysts. The average price target for SMPL stock is $39.50, representing a potential upside of 9.06% from current levels.
The stock has been range-bound between $30 and $40 in the past three years and currently trades in the middle of its 52-week range of $30.00 – $43.00. With a P/B ratio of 2.12x, the stock trades with the Packaged Foods industry average of 2.26x. However, its P/FCF trades at a discount to the industry (16.31x vs. 17.60x), pointing to upside potential given an anticipated revenue rise.
SMPL in Summary
Simply Good Foods has posted recent success from its flagship brands of Atkins and Quest, and the addition of OWYN’s RTD protein shake brand to its portfolio will likely enhance its growth prospects further. The stock price aligns with industry averages, though the current price likely discounts the expected revenue boost, suggesting it is an appealing option with potential upside.
