Company Reports

With its fresh products, Freshpet is well positioned to capitalize on continued growing pet ownership along with humanization trends by expanding its store footprint and growing its sales-per-store. It primarily focuses on the $37 billion US dog food market (2023 estimate according to Euromonitor) through company-owned and -maintained refrigerators in 27,500 grocery, mass and club, pet specialty, and natural stores. The company estimates a market opportunity of at least 30,000 stores, though we forecast at least 36,000 by the end of our 10-year forecast period given the 46,000 supermarkets in the US alone, not including pet specialty stores.

We plan to increase our $88 per share for no-moat Freshpet by a mid- to a high-single digit percentage for stronger near-term performance after reviewing its second-quarter results. The company updated its full-year guidance to net sales of at least $965 million and adjusted EBITDA of at least $140 million, up from $950 million and $120 million, respectively. Our forecasts prior to the earnings report of $958 million and $128 million exceeded previous guidance, but not by enough, as sales growth and margin expansion proved stronger than we expected.

With its fresh products, Freshpet is well positioned to capitalize on continued growing pet ownership along with humanization trends by expanding its store footprint and growing its sales-per-store. It primarily focuses on the $37 billion US dog food market (2023 estimate according to Euromonitor) through company-owned and -maintained refrigerators in 27,100 grocery, mass and club, pet specialty, and natural stores. The company estimates a market opportunity of at least 30,000 stores, though we forecast at least 35,000 by the end of our 10-year forecast period given the 46,000 supermarkets in the US alone, not including pet specialty stores.

No-moat Freshpet’s fresh product continued to resonate with consumers, leading to robust top-line growth and margin expansion in its first quarter. Net sales grew 34% over the prior year to $224 million. Margin expanded 1,190 basis points to 13.7%; adjusted EBITDA of $30.6 million was 10 times higher than a year ago. Still, these results were only slightly better than what the company guided to, as it maintained its full-year sales outlook of $950 million and ticked up its adjusted EBITDA guidance to $120 million, up from $100 million to $110 million. We expect to raise our $85 per share fair value estimate by a low-single-digit percentage on higher near-term profits. Shares were up 10% on the results, leaving them well above our fair value estimate.

With its fresh products, Freshpet is well positioned to capitalize on continued growing pet ownership along with humanization trends by expanding its store footprint and growing its sales-per-store. It primarily focuses on the $37 billion US dog food market (2023 estimate according to Euromonitor) through company-owned and -maintained refrigerators in 27,000 grocery, mass and club, pet specialty, and natural stores. The company estimates a market opportunity of at least 30,000 stores, though we forecast at least 35,000 by the end of our 10-year forecast period given the 46,000 supermarkets in the US alone, not including pet specialty stores.

No-moat Freshpet reported impressive full-year 2023 net sales growth of 29% to $767 million, ahead of its guidance for $755 million and our forecast for $759 million. We were equally impressed that the adjusted EBITDA margin widened 530 basis points to 8.7%, 60 basis points better than our forecast. We expect to raise our fair value estimate by a mid-single-digit percentage, reflecting better profitability and lower capital spending partially offset by higher media spending. Shares were up 19% intraday on the results, leaving them well above our fair value.

We’re initiating coverage of pet food producer Freshpet with a fair value estimate of $77 per share and a no-moat rating. Our fair value estimate implies about 39 times enterprise value/adjusted EBITDA off our 2024 estimates, with the high multiple reflecting the company’s current growth stage. At the current market price, we think shares are fairly valued. For pet food exposure, Blue Buffalo-owner narrow-moat General Mills looks undervalued, at an 18% discount to our valuation.

With its fresh products, Freshpet is well positioned to capitalize on continued growing pet ownership along with humanization trends by expanding its store footprint and growing its sales-per-store. It primarily focuses on the $37 billion U.S. dog food market (2023 estimate according to Euromonitor) through company-owned and -maintained refrigerators in 26,000 grocery, mass and club, pet specialty, and natural stores. The company estimates a market opportunity of at least 30,000 stores, though we forecast about 35,000 by the end of our 10-year forecast period given the 46,000 supermarkets in the U.S. alone, not including pet specialty stores.