Vital Farms, Inc.

VITL Details

Vital Farms, Inc. (NASDAQ: VITL) is a food company that has a framework to become the leading U.S. brand of pasture-raised eggs and butter. It is the second-largest U.S. egg brand by retail dollar sales.

Result Performance – For the second quarter ended 27 June 2021 – (Q2FY21)

• Rise in Revenue: Net revenue stood at $60.3 million in Q2FY21 versus $59.3 million Q2FY20, translating into 1.7% YoY growth. This growth was led mainly by the continued rise in egg-related sales driven by a jump in household penetration and new distribution opportunities at both new and existing retail partners. The revenues increased 36.7% on a two-year compound annual growth rate (CAGR).
• Adjusted EBITDA stood at $5.1 million in Q2FY21 versus $9.3 million in Q2FY20, mainly led by an incremental cost from becoming a public company, higher freight costs, and a rise in marketing investments.
• Net income stood at $3.9 million in Q2FY21 versus $6.0 million in Q2FY20 and net income per diluted share stood at $0.09 versus $0.16 in Q2FY20.

Key Data (Source: Company Reports) 

Risks:

Failure to introduce new products in the market to engage the client better than previous engagements could adversely impact the growth momentum and financials.  Of late, it has enhanced few product offerings beyond pasture-raised eggs that place the company at a difficult spot to forecast future results of operations. Further, the company is exposed to the risk of fluctuations in commodity prices and the availability of feed grains when needed.

Outlook:

The management of the company shared guidance which continues to assume that there would be no significant disruptions to the existing supply chain, or its customers or consumers, including any surprises from adverse macroeconomic factors.

• For the full year 2021, net revenue is forecasted to be in the ambit of $246-$253 million, an increase of 15-18% compared to 2020.
• For the full year 2021, Adjusted EBITDA is expected to be in the range of $7-$9 million.

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

Technical Overview:

Chart

Source: REFINITIV

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

Stock Recommendation:

The stock has made a 52-week low and high of $16.02 and $42.50, respectively and is currently trading below the average of 52-week high-low range.

The stock has been valued using an EV/Sales multiple- based illustrative relative valuation method and  a target price with the potential of low double-digit (in percentage terms) upside, has been arrived. The company might trade at a slight premium to its peers’ average, considering improved liquidity which could help the company moving forward.

However, the investors should closely track related risks such as the changing pattern of consumers, intense competition, the launch of the new product to keep customers engaged, and government regulations.

Considering the aforesaid facts, we give a “Speculative Buy” recommendation on the stock at the current market price of $16.730 per share, down 2.34% on 26^th August 2021. 

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

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

Technical Indicators Defined:-

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

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

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

Disclaimer

The advice given by Kalkine Canada Advisory Services Inc. and provided on this website is general information only and it does not take into account your investment objectives, financial situation and the particular needs of any particular person. You should therefore consider whether the advice is appropriate to your investment objectives, financial situation and needs before acting upon it. You should seek advice from a financial adviser, stockbroker or other professional (including taxation and legal advice) as necessary before acting on any advice. Not all investments are appropriate for all people. The website www.kalkine.ca is published by Kalkine Canada Advisory Services Inc. The link to our Terms & Conditions has been provided please go through them. On the date of publishing this report (mentioned on the website), employees and/or associates of Kalkine do not hold positions in any of the stocks covered on the website. These stocks can change any time and readers of the reports should not consider these stocks as advice or recommendations later.