Piper Sandler cuts Freshpet stock target to $160, keeps overweight

On Friday, Piper Sandler adjusted its price target for Freshpet stock, listed on (NASDAQ:FRPT), to $160 from the previous target of $180. The firm maintained an Overweight rating on the shares, indicating a positive outlook on the company’s performance despite recent market movements. Currently trading at $106.39, the stock has experienced a significant 17.92% decline over the past week, with InvestingPro data suggesting the shares are currently in oversold territory.

The reassessment of Freshpet’s value came after considering the company’s growth prospects and current market dynamics. With a market capitalization of $5.2 billion and impressive revenue growth of 27.16% over the last twelve months, Freshpet maintains strong momentum. Analysts at Piper Sandler noted that Freshpet’s growth trajectory remains attractive, even though it has experienced a pullback which they believe is overdone. The slower growth is not attributed to a decrease in consumer demand but rather to limitations in the company’s production capacity. According to InvestingPro, the company maintains a healthy financial position with a "GOOD" overall score.

Freshpet’s more modest growth forecast of 21-24% is not due to a decline in market demand but is a result of the company reaching its current production capacity. Analysts believe that if Freshpet could support it, there is sufficient consumer demand to drive faster growth. They anticipate that Freshpet will continue to achieve volume growth through increased household penetration.

Furthermore, Piper Sandler expects Freshpet’s profit margins to improve as the company scales up and expands production, which should lead to greater operational efficiency and leverage. Despite a slight reduction in sales estimates for the years 2025 and 2026, from approximately $1,210 million to $1,200 million and from approximately $1,485 million to $1,470 million respectively, the firm’s outlook remains positive.

The new price target of $160 reflects a valuation of approximately 5 times the expected enterprise value to sales ratio, a decrease from the prior multiple of 6 times. This adjustment acknowledges the slightly tempered sales growth expectations for Freshpet while still affirming the company’s strong long-term potential in the market. With analyst targets ranging from $104 to $195, and InvestingPro analysis indicating the stock is currently undervalued, investors seeking deeper insights can access comprehensive valuation metrics and 16 additional ProTips through the InvestingPro platform’s detailed research report.

In other recent news, Freshpet reported mixed financial results for the fourth quarter of 2024, with earnings per share (EPS) of $0.36, falling short of the forecasted $0.40. The company’s revenue for the quarter reached $262.7 million, slightly below the anticipated $263.94 million. Despite these misses, Freshpet achieved a significant year-over-year growth in adjusted EBITDA, which increased by 68% to $52.6 million, surpassing the $47.6 million estimate. The company also reported a 22% year-over-year increase in net sales, totaling $262.7 million, although this was slightly under the expected $264.3 million.

Looking ahead, Freshpet forecasts adjusted EBITDA to be at least $210 million for the year, exceeding the Bloomberg Consensus estimate of $204.9 million. However, the company’s net sales projection of $1.18 billion to $1.21 billion falls short of the estimated $1.22 billion. Analyst Thomas Palmer from Citi revised the price target for Freshpet stock to $123 from $142, maintaining a Neutral rating due to concerns over sales growth deceleration.

Despite these challenges, Freshpet’s management remains optimistic about future EBITDA margin improvements. Analysts from Piper Sandler and Truist Securities have expressed positive views on Freshpet’s growth potential and margin expansion outlook, while TD Cowen acknowledged the company’s weaker sales growth. Freshpet’s emphasis on managing growth and supply chain constraints appears to be a key focus as the company navigates the challenges ahead.

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