TD Cowen cuts Freshpet target to $141, maintains Buy rating

On Friday, TD Cowen analysts adjusted their outlook on Freshpet shares (NASDAQ:FRPT), reducing the price target to $141 from the previous $174 while still upholding a Buy rating on the stock. The revision followed Freshpet’s announcement of fourth-quarter sales that fell short of expectations and a 2025 sales growth forecast of 21-24%, which was below the consensus. This guidance prompted an 18% drop in the company’s stock price, bringing it to $103.64, significantly below its 52-week high of $164.07. According to InvestingPro data, the stock has declined nearly 28% year-to-date, though it maintains a 19% gain over the past year.

Analysts at TD Cowen believe the market’s reaction to the slower growth is excessive. They argue that the current dip in the dog food category, which affected Freshpet’s performance, is temporary. The firm’s analysts suggest that concerns over a continued deceleration in Freshpet’s growth are unwarranted, viewing the recent pullback in stock price as an overreaction. InvestingPro analysis supports this view, with technical indicators suggesting the stock is in oversold territory. Despite trading at elevated multiples, the company’s PEG ratio of 0.47 indicates potential undervaluation relative to its growth prospects.

TD Cowen remains optimistic about Freshpet’s potential for a rebound in the second half of the year. They anticipate that as the dog food category returns to normal, Freshpet’s growth will pick up pace, driven by expanded distribution and increased advertising efforts. The firm’s stance is that these factors will contribute to the company’s recovery and help the stock regain its lost value.

Despite the lowered price target, TD Cowen’s continued endorsement of a Buy rating indicates their confidence in Freshpet’s business fundamentals and its ability to navigate through the current industry challenges. The analysts expect that the corrective measures and strategic initiatives Freshpet is set to implement will lead to improved performance and support the stock’s upward trajectory in the near future.

Investors and market watchers will be keeping a close eye on Freshpet’s progress in the coming months, particularly in terms of sales growth and market share within the pet food industry, as these will be critical indicators of the company’s ability to meet TD Cowen’s expectations and justify the firm’s rating. The company’s strong financial health is evidenced by its current ratio of 4.42 and moderate debt levels, while analysts expect continued growth with revenue forecast to increase by 24% in FY2025. For deeper insights into Freshpet’s valuation and growth prospects, investors can access comprehensive analysis and additional ProTips through InvestingPro’s detailed research reports.

In other recent news, Freshpet has reported mixed fourth-quarter results for 2024, with earnings per share (EPS) of $0.36, falling short of the forecasted $0.40. Revenue for the quarter reached $262.7 million, slightly below the anticipated $263.94 million. Despite these shortfalls, the company achieved a significant year-over-year growth in net sales and profitability, marking its first year of positive net income with a full-year EPS of $0.94. Freshpet’s adjusted EBITDA saw a notable increase of 68% year-over-year to $52.6 million, surpassing estimates. The company projects 2025 net sales growth between 21% and 24%, with adjusted EBITDA expected to be at least $210 million, above the Bloomberg Consensus estimate of $204.9 million.

In analyst updates, Stifel adjusted its price target for Freshpet stock to $155 from $165, maintaining a Buy rating, while Piper Sandler lowered its target to $160 from $180, keeping an Overweight rating. Citi also revised its price target to $123 from $142, maintaining a Neutral rating. These adjustments follow Freshpet’s recent financial disclosures and market dynamics. Analysts at Piper Sandler noted that the slower growth is due to production capacity limitations rather than a decrease in consumer demand. Stifel remains confident in Freshpet’s strategic goals and financial health, despite the near-term price target adjustment. Citi’s analyst expressed optimism about Freshpet’s EBITDA margin performance, despite concerns over slower sales growth.

The company has set ambitious targets, aiming for a 22% adjusted EBITDA margin by 2027 and expecting significant free cash flow generation as capital expenditures decrease. Freshpet is focused on expanding production to meet consumer demand, with plans to support up to $3 billion in sales with its current facilities. The company continues to navigate challenges such as supply chain constraints while maintaining its growth trajectory.

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