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Freshpet (FRPT) a Very Attractive Takeover Target, May Be Worth 'North of $80/Sh'

September 23, 2022 11:46 AM EDT
Get Alerts FRPT Hot Sheet
Price: $63.95 -1.52%

Rating Summary:
    16 Buy, 6 Hold, 0 Sell

Rating Trend: Up Up

Today's Overall Ratings:
    Up: 2 | Down: 23 | New: 24
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Freshpet (NASDAQ: FRPT) is adding to Thursday's gains following news that activist investor JANA Partners has taken a 10% stake and is seen pushing for operational improvements and the sale of the company. After jumping 16% Thursday, shares are up another 2% on Friday.

Several Wall Street analysts have weighed in on the news and see the company as an attractive takeover target.

Oppenheimer's Rupesh Parikh believes the company would be an attractive target given its "dominant share in the attractive fresh pet food category and a significant global runway for growth." He thinks the stock could be worth over $80 per share in a takeover, or ~5x their FY23 sales forecast. That being said, the analyst said the probability of a takeover is harder to assess given the current macro/cost backdrop.

Stifel analyst Mark Astrachan said the strong sales growth remains the company's greatest asset, with Q3 to-date sales growth running 44%. He thinks operational improvements could
meaningfully improve EBIT/EBITDA margin and profitability as most pet food businesses have 20%+ EBIT/EBITDA margin. "For example, a 21% adjusted EBITDA margin on 2025E sales of $1.2bn, results in FRPT shares trading at 8.8x at current levels, a meaningful discount to growth peers," Astrachan highlights. The analyst said while they have no knowledge of discussions, "we think Freshpet would be an attractive acquisition for many of the larger industry participants and those seeking to gain entrance into the category." That said, the analyst said a takeover is not necessary for the stock to work.

Meanwhile, William Blair analyst Jon Andersen doesn't see a sale in the near term as likely but still views the stock as cheap. He said work on operational capabilities, margin improvement, capital allocation, and communications are “value added.”

On who could buy the company, names such as General Mills (NYSE: GIS) and The J. M. Smucker Company (NYSE: SJM), both of which have pet food businesses, were bandied about.

By StreetInsider.com Staff



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