On Friday, TD Cowen analyst Robert Moskow adjusted the price target for The Simply Good Foods Group (NASDAQ: SMPL), increasing it to $36.00 from the previous $34.00, while maintaining a Hold rating on the stock. Moskow's evaluation follows Simply Good Foods' report of flat organic sales growth for the first quarter, which fell short of the consensus estimate of a 2.3% increase.
The discrepancy was attributed to a 4% delay in shipments, now expected in the second quarter. Despite this, the company's management has reaffirmed its fiscal year 2025 guidance.
The delay in shipments was partly due to a major customer's decision to prioritize general merchandise during the Black Friday and Cyber Monday sales events, which resulted in a four-point delay in revenue recognition.
This shift is anticipated to cause an imbalance in the second quarter, with Quest shipments growing at a low double-digit rate, outpacing consumption, which is expected to see a high single-digit increase. On the other hand, Atkins shipments are projected to decrease at a low double-digit rate, lagging behind consumption, which is expected to decrease at a high single-digit rate.
The decision to reduce unprofitable merchandise activities has led to a loss of shelf space for Atkins, impacting its shipments. However, Simply Good Foods anticipates that the first half's shipment growth will align with the overall consumption rates. Moskow's revised price target of $36 is based on a 12.5 times enterprise value to EBITDA (EV/EBITDA) multiple on the firm's fiscal year 2026 EBITDA estimate. This valuation is below the company's historical average multiple of 16 times.
Despite the challenges faced by the Atkins brand, which continues to experience high single-digit declines, Simply Good Foods is considered to be in a strong position to take advantage of the growing popularity of high-protein, low-carb, and low-sugar foods.
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