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Investing.com -- HelloFresh (ETR:HFGG) has been placed on J.P. Morgan’s Positive Catalyst-Watch ahead of its upcoming Capital Markets Day, with expectations that management will outline further cost-saving measures and confirm revenue stabilization from mid-2026 onwards, in a note dated Tuesday.
Despite a challenging year marked by revenue declines, J.P. Morgan sees a turning point for the company as it shifts focus towards a more sustainable financial model.
The company’s meal-kit business has struggled, with revenue falling 9.5% in 2024 and a sharper decline of 11.9% in the fourth quarter alone.
Projections for 2025 indicate further revenue drops of 3% to 8%, diverging significantly from prior expectations of modest growth.
This downturn is attributed to the German meal-kit company’s decision to reduce spending on customer acquisition, instead prioritizing its existing customer base. However, higher-than-anticipated churn rates have compounded revenue losses.
While the meal-kit segment continues to face headwinds, the company’s growing Ready-to-Eat (RTE) division is emerging as a counterbalance.
J.P. Morgan flags that the mix-effect, with RTE replacing meal-kits in revenue composition, is materializing faster than expected.
The company has managed this transition effectively, implementing cost reductions and improving efficiency, leading to a 3 percentage-point increase in EBITDA margin in the fourth quarter, reaching 9.1% compared to 6.1% a year earlier.
For the CMD, analysts expect management to provide further details on cost-saving initiatives, potentially announcing an additional €100 million in cuts over the next two years.
Alongside this, HelloFresh is expected to share data reinforcing the ongoing expansion of its RTE segment, which is projected to achieve revenue growth exceeding 20% in 2025.
Despite weak top-line performance, the company’s strong cost execution and low valuation suggest potential for a turnaround.
HelloFresh is currently trading at approximately 3x EV/EBITDA with an 11% free cash flow yield expected in 2025.
J.P. Morgan argues that if management can deliver a compelling outlook for renewed revenue growth from mid-2026, it could serve as a catalyst for a valuation re-rating.
HelloFresh’s marketing expenses have already been significantly reduced, dropping to 16% of revenue in the fourth quarter from 19% in the prior year.
Further efficiency gains are anticipated, particularly within the meal-kit segment, where headcount reductions and operational streamlining are expected to continue.
Meanwhile, the RTE business is set to capture a larger share of profitability, with its EBITDA contribution projected to rise to 40% by 2027, up from just 1% in 2024.
The company’s stock has struggled in recent months, down approximately 16% since its latest earnings announcement.
However, J.P. Morgan suggests that the market may be underestimating the shifting financial profile of the business.
While the meal-kit division is in structural decline, HelloFresh’s transformation into a high-margin, cash-generating enterprise is progressing.
The analysts draw parallels with the food service industry, where businesses with similar financial characteristics trade at higher valuation multiples.
J.P. Morgan has adjusted its price target for HelloFresh from €15 to €13, reflecting updated earnings estimates.