Vital Farms, Inc.

VITL Details

Vital Farms, Inc. (NASDAQ: VITL) is a food company with 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)

• Net revenue stood at $60.3 million in Q2FY21 versus $59.3 million Q2FY20, driven by the continued rise in egg-related sales led by increased household penetration and new distribution opportunities at both new and existing retail partners. The revenues increased 36.7% on a two-year CAGR which removes the one-time impact of the pandemic thereby presenting a better picture of the growth trajectory of the business.
• 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 better engage the client  could adversely impact the growth momentum and financials.  Recently, it has  introduced 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:

Assuming that there might not be additional significant disruptions to the supply chain or adverse change in macroeconomic factors, the management of the company has provided  guidance for the full year 2021, where it expects  net revenue  to be in the ambit of $246-$253 million, an increase of 15-18% compared to 2020. Further, it expects Adjusted EBITDA  to be in the range of $7-$9 million.

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

Technical Overview:

Chart:

Source: REFINITIV

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

Stock Recommendation:

The stock has made a 52-week low and high of $16.02 and $41.52, respectively and is currently trading below the average of the 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 upside of low double-digit (in percentage terms) has been arrived. The company might trade at a slight premium to its peers’ average, considering a higher asset turnover of 0.34x in Q2FY21 versus an industry median of 0.22x and a shorter cash conversion cycle at 23.9 days in Q2FY21 versus an industry median of 43.5 days.

Considering the aforesaid facts, we give a “Speculative Buy” recommendation on the stock at the current market price of $17.00 per share, up 0.06% on 7^th September 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

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