Vital Farms, Inc.

VITL Details

Vital Farms, Inc. (NASDAQ: VITL) is one of the top U.S. brands of pasture-raised eggs and pasture-raised butter. It is also the second-largest egg brand in terms of retail dollar sales. The company sold its pasture-raised eggs and butter products across conventional and natural grocery stores and foodservice outlets in the country.

Results Performance for the Second Quarter Ended 27 June 2021 (Q2FY21)

• An increase in net revenue to $60.3 million in Q2FY21 from $59.3 million Q2FY20, driven by the sustained rise in egg-related sales. The revenues increased 36.7% on a two-year CAGR which removes the one-time impact of the pandemic thereby presenting a better picture of the growth trajectory of the business.
• Gross profit reduced to $21.9 million in Q2FY21 from $22.7 million in Q2FY20, mainly due to the impact of higher promotional spending and increased grain input costs on shell eggs.
• Net income reduced to $3.9 million in Q2FY21 from $6.0 million in Q2FY20 and net income per diluted share stood at $0.09 versus $0.16 in Q2FY20.

Key Data (Source: Company Reports) 

Key Updates:

• As per the release dated 14 September 2021, the company will host an Investor Day on 28 September at Egg Central Station, in Springfield, MO to review an update on the running business with details on company’s differentiated supply chain.
• The company, on 9 August 2021, launched a new product - Pasture-Raised Butter with Sea Salt & Avocado Oil, the first domestic tub butter prepared with pasture-raised butter and avocado oil. The new product further includes the highest fat content amongst the domestically distributed product in the category.

Outlook

The management believes that there might not be further substantial disruptions to the supply chain or customers or consumers or adverse changes in macroeconomic factors. Resultantly, the management of the company has guided achieving net revenue in the range of $246-$253 million in FY21, a growth of 15-18% compared to 2020. Further, it has maintained its guidance on its adjusted EBITDA that is expected to remain between $7-$9 million in FY21.

Key Risks

The company’s inability to launch new products may hurt its growth plans. The company’s performance is highly dependent on the sales of pasture-raised shell eggs and any slowdown in these sales would negatively impact its financial condition. Volatility in commodity prices and the availability of feed grains could have a bearing on its results.

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

Technical Overview:

Daily Price Chart

Source: REFINITIV, Note: Purple color line reflects Relative Strength Index (14-Period)

Stock Recommendation

The company has delivered 6-month and 9-month returns of ~-22.66% and ~-32.25%, respectively. The stock is trading lower than the average of the 52-week high price of $41.24 and the 52-week low price of $16.02, which indicates a good opportunity for accumulation.

The stock has been valued using an EV/Sales multiple based relative valuation (on an illustrative basis) and the target price reflects a rise of low double-digit (in % terms). A slight premium has been applied to peer average EV/Sales multiple (NTM basis), considering its higher current ratio of 5.26x in Q2FY21 versus an industry median of 1.99x and a shorter cash conversion cycle at 23.9 days in Q2FY21 versus an industry median of 43.7 days.

Considering the aforementioned factors, we give a “Speculative Buy” recommendation on the stock at the current market price of $16.43 per share, (Time: 9:59 AM, NY, USA) as of 29^th September 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.

Stop-loss: It is a level to protect further losses in case of unfavourable movement in the stock prices.