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)

• The company has recorded an increase of 1.7% YoY in net revenue to $60.3 million in Q2FY21 from $59.3 million Q2FY20, driven by the sustained rise in egg-related sales.
• 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 in Q2FY21 versus $0.16 in Q2FY20.

Key Data (Source: Company Reports)

Recent Update

• On 25 October 2021, the company announced that it had launched its first e-commerce storefront, “Vital Farms Farm Shop”. Through this platform, consumers can now directly order the company’s products from this online store.

Outlook

The management believes that there might not be further substantial disruptions to the supply chain or customers or adverse changes in macroeconomic factors. Resultantly, the company's management 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. Meanwhile, the company will release its financial results for Q3FY21 on November 9, 2021.

Key Risks

The company’s inability to launch new products may hurt its growth plans. VITL’s performance depends on 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 stock declined by ~36.87% in 9 months. The stock has been valued using an EV/Sales multiple based relative valuation (on an illustrative basis) and the target price so arrived reflects a rise of low double-digit (in % terms). A slight premium has been applied to peer average EV/Sales multiple (NTM basis) considering increased current ratio in Q2FY21 on the YoY basis as well as decent outlook.

Considering the aforementioned factors, we give a “Speculative Buy” recommendation on the stock at the closing market price of $16.50 per share, down by 4.07% as of 27^th October 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