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On Wednesday, Piper Sandler adjusted its outlook on Oatly Group AB (NASDAQ:OTLY) shares, reducing the price target significantly to $16.00 from the previous $40.00, while still maintaining an Overweight rating on the stock. According to InvestingPro data, Oatly currently trades at $8.81 with a market cap of $263M, showing moderate revenue growth of 5.15% over the last twelve months. The adjustment follows a reassessment of the company’s revenue growth prospects, particularly in its North American market.
The firm’s analysts have revised their model to account for a slower momentum in top-line growth. A notable factor contributing to this revision is the loss of distribution through Starbucks (NASDAQ:SBUX), which is anticipated to create a roughly 4.5 percentage point headwind in the first quarter of 2025. Despite this setback, Oatly is expected to see strong gross margin expansion as it enters 2025, building upon its current gross margin of 28.71%. However, InvestingPro analysis indicates the company operates with a significant debt burden, with a concerning debt-to-equity ratio of 4.69.
The expansion is attributed to several strategic moves by Oatly, including plant closures, reduced input costs, better utilization of global sourcing resources, and effective management of its product mix. These initiatives are seen as positive steps towards improving the company’s profitability. InvestingPro subscribers can access 15+ additional ProTips and comprehensive analysis about Oatly’s financial health, which currently shows a weak overall score of 1.59.
As a result of the revised growth expectations, Piper Sandler has also adjusted its sales forecasts for the coming years. The 2025 sales estimate has been reduced from approximately $835 million to $830 million, and the 2026 forecast has been lowered from around $895 million to $890 million.
The new price target of $16 reflects a valuation multiple that is closer to that of Oatly’s peers. Piper Sandler’s decision to use a roughly 1x multiple is aimed at better aligning Oatly’s valuation with the broader market, considering a wider range of suitable round-dollar targets post-split. This change in valuation approach underscores the firm’s recalibrated expectations for the plant-based food company’s financial performance.
In other recent news, Oatly Group AB reported its fourth-quarter 2024 earnings, revealing a larger-than-expected loss per share of -$0.15, missing analyst forecasts of -$0.07. The company’s revenue for the quarter was $214.32 million, slightly below the forecast of $218.6 million. Despite these misses, Oatly experienced a significant improvement in its gross margin, which increased by 9.3 percentage points to 28.7%. The company also announced a strategic collaboration with Nespresso, reflecting its ongoing efforts to expand market presence.
Barclays (LON:BARC) analyst Andrew Lazar recently adjusted the price target for Oatly shares from $2.00 to $1.00 but maintained an Overweight rating, indicating continued confidence in the company’s market potential. This comes as Oatly realigns its business strategies to better fit current industry conditions, aiming for a positive EBITDA by 2025. Oatly’s forward-looking strategy includes cost-cutting measures and new product launches to drive growth.
Additionally, Oatly projects a constant currency revenue growth of 2-4% for 2025, with an adjusted EBITDA guidance set between $5 million and $15 million. The company plans to continue investing in operational efficiencies, with capital expenditures expected to range from $30 million to $35 million. These recent developments highlight Oatly’s strategic focus on achieving profitable growth and expanding its market share in the plant-based milk sector.
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