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Investing.com -- Jefferies analysts upgraded Freshpet (NASDAQ:FRPT) to a Buy rating from Hold, citing a strong growth outlook and an undervalued stock price.
"Freshpet’s shares are down 32% this year despite strong Q4 results and a promising outlook," Jefferies noted, adding that shares should be worth 50% more than their current levels.
The firm set a price target of $150 on the stock, down from $155, reflecting a 20x multiple on estimated 2027 adjusted EBITDA.
The firm believes Freshpet’s growth story remains compelling, driven by pet premiumization and humanization trends.
"With Freshpet and Farmer’s Dog (private) estimated to be having ~20% household penetration, there is room to grow," Jefferies stated.
The firm expects Freshpet to grow at a 22.5% CAGR from 2025-2027, reaching $1.8 billion in sales—an 84% increase from 2024.
On profitability, Jefferies highlighted that Freshpet has successfully scaled its business.
"Not long ago, the market debated the cash and profit potential given the capital intensity and a complicated route to market. In two years, Freshpet has proven the business can be scaled," the analysts wrote.
The company ended 2024 with adjusted gross margins of 46.5% and EBITDA margins of 16.6%. Management has raised guidance for both, and Jefferies believes Freshpet will achieve positive free cash flow in 2026.
Despite a temporary slowdown in retail sales growth to ~20% year-to-date, Jefferies expects acceleration in the second half of 2025. "Growth has always oscillated between capacity and demand creation," the analysts explained.
At its current valuation of 14x FY3 EBITDA, Jefferies believes Freshpet is at a historical low, making it an attractive entry point.
The firm concluded, "Growing 20+% and hitting profit/cash flow targets will give the business the ability to reinvest where appropriate from 2026 on when the category is likely to be even healthier."