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Investing.com -- Shares of HelloFresh (ETR:HFGG) (OTC:HLFFF) surged by over 13% on Thursday, after Jefferies' upgraded the stock to "buy" from "hold."
Analysts at Jefferies cited HelloFresh's emerging strategies and undervalued positioning as the core reasons for the reassessment.
The brokerage's note flagged the company's new focus on free cash flow generation and stabilizing meal kit revenues, which signal a recovery phase following two challenging years marked by profit warnings.
HelloFresh has been navigating structural—not secular—issues, as per Jefferies. The company saw headwinds in the wake of the pandemic, which saw its customer acquisition strategies misaligned with post-pandemic consumer behaviors.
However, the analysts argue that HelloFresh's strong fundamentals as a global leader in direct-to-consumer food services, coupled with new marketing strategies and operational improvements, position it well for recovery and growth.
Jefferies said that the company is trading at less than five times its projected 2025 EBITDA, a steep discount to its fair value, which they estimate at €16.50 per share, representing a 40% upside from its prior-day trading price of €11.81.
The research also pointed to HelloFresh’s diversification into the ready-to-eat market, a segment growing faster than meal kits, as a pivotal factor.
Since entering the RTE space with the acquisition of Factor in 2020, HelloFresh has increased revenue in this segment sevenfold.
Analysts believe the RTE segment’s margins will align with those of meal kits in the medium term, further bolstering profitability.
Jefferies underscores the company’s ongoing shift towards a mature business model, where shareholder returns, such as buybacks and potential dividends, are prioritized.
This move aligns with the presence of an activist investor, which analysts see as a catalyst for maintaining disciplined capital allocation.
Going forward, the company’s self-help measures—focused on marketing efficiency, customer retention, and operational optimization—are expected to amplify EBITDA growth, which Jefferies forecasts to reach 16% annually through 2028.