Vital Farms Inc.

VITL Details

Vital Farms Inc (NASDAQ: VITL) is a food company dealing in one of the top U.S. brands of pasture-raised eggs and pasture-raised butter. They are sold in conventional and natural grocery stores and foodservice outlets nationwide.

Q1FY21 Results Performance (For the Quarter Ended March 28, 2021)

The company has recorded net revenue growth of 23% to $58.5 million in Q1FY21 from $47.6 million in Q1FY20 driven by growth in volume to its distributors and retail partners along with the benefits of distribution gains in new and existing customers. It witnessed an increase in its gross profit to $21.3 million from $15.9 million in Q1FY20. Adjusted EBITDA for the period stood at $4.7 million compared to $3.8 million in the same quarter last year due to increased volume and enhanced margin.  Further, increased EBITDA had a positive bearing on net income which increased to $3.5 million in Q1FY21 from $1.9 million in Q1FY20.

Consolidated Financial Snapshot (Source: Company Reports) 

Recent Update 

Following the move by Acosta on uniting of foodservice businesses of Acosta and The Core Group to create CORE Foods, the company has decided to end its partnership with Acosta Foodservice due to a competitive issue related to this  merger. This was done after mutual consent with Acosta Foodservice.

Outlook

The company delivered a strong result for the quarter, demonstrating its ability to retain consumers in otherwise a highly competitive market. It experienced solid growth in both retail distribution and household penetration. It remains confident of further increasing its household reach with its high-quality, pasture-raised products driven by robust prevailing opportunities. Meanwhile, VITL has guided at achieving net revenue in the range of $246 million to $253 million in FY21, which reflects a growth of 15 to 18% over FY20. Further, it has increased its adjusted EBITDA guidance to a range of $7 million to $9 million from its earlier guidance of $6 million to $8 million.

Key Risks

The company’s inability to launch new products may hurt its growth plans. VITL’s performance is highly dependent on the sales of pasture-raised shell eggs and any slowdown in these sales may impact its financial performance. Volatility in commodity prices and the availability of feed grains could have a bearing on its results. Also, there are risks associated with the limited trading history.

Valuation Methodology: EV/Sales Based Relative Valuation (Illustrative)

Technical Overview:

Weekly Chart –

Source: REFINITIV

Note: Purple colour lines are Bollinger Bands® with the upper band suggesting overbought status while the lower band oversold status, and yellow lines are Fibonacci retracement lines which measure price rebound and backtrack. https://www.bollingerbands.com/

The stock while remaining in a downtrend, has given a weaker close for the ongoing week at $20.35. The technical indicator RSI with a reading around 38 and a flattish curve at the end suggests flattening of momentum.

Going forward, the stock may have resistance around the 23.6% retracement level of $24.74 whereas support could be around the previous low of $18.90.

Stock Recommendation 

The stock has declined by ~49.55% in 9 months. It has made a 52-week low and high of $19.0654 and $43.2999, respectively.

We have applied EV/Sales multiple based relative valuation (on an illustrative basis) and the target price reflects a rise of low double-digit (in % terms). We have applied a slight premium as compared to peer average EV/Sales multiple (NTM basis) considering its sustained focus on store growth across the retail channel as well as accelerating household penetration and robust FY21 guidance.

Considering the aforementioned factors along with its healthy liquidity position and growth strategy, we give a “Speculative Buy” recommendation on the stock at the current market price of $20.35 per share, down by 2.4% on 29^th June 2021.

Note 1: The reference data in this report has been partly sourced from REFINITIV.

Note 2: Investment decisions should be made depending on the investors’ appetite on upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the analysis has been achieved and subject to the factors discussed above alongside support levels provided.

Technical Indicators Defined:-

Support: A level where-in the stock prices tend to find support if they are falling, and downtrend may take a pause backed by demand or buying interest.

Resistance: A level where-in the stock prices tend to find resistance when they are rising, and uptrend may take a pause due to profit booking or selling interest.