On Tuesday, BofA Securities initiated coverage on shares of Lindt & Spruengli (LISN:SW) (OTC: LDSVF), the renowned chocolate manufacturer, with a Buy rating and a price target of CHF127,000. The firm's analyst highlighted the company's potential for growth, despite current challenges in the cocoa market.
The analyst noted that Lindt stands out as a "quality growth compounder" with an anticipated 17% upside potential. The company's current valuation, at 37 times the forecasted FY24 earnings, reflects a 7% discount compared to the average of the past five years. This discount, according to the analyst, does not fully account for the steady 9% earnings per share compound annual growth rate (CAGR) expected from FY23 through FY28.
The optimism about Lindt's performance is based on several factors. First, the company is expected to achieve a 7.7% revenue CAGR, driven by its attractive exposure in the chocolate category and gains in market share. Second, Lindt's superior market positioning is likely to allow it to implement an 11% price increase over FY24-25 to offset cocoa inflation, and then sustain those prices even when costs decrease.
Finally, the analyst projects an annual 30 basis points expansion in EBIT margin due to operational leverage and the anticipated reduction in the cost of goods sold (COGS) over the medium term. This financial outlook suggests that Lindt is poised to navigate the tight supply and demand dynamics in the cocoa trade effectively while maintaining its growth trajectory.
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