Freshpet Moves Up On Analysts Support For Outlook
Shares of Freshpet (NASDAQ: FRPT) have been in a downtrend since hitting their peak in early 2021 but the institutions are buying the stock on the dips. Not only have the institutions purchased roughly 20% of the market cap (with shares trading near $105) but the buying activity peaks in tandem with lows in share price and that trend is holding true in 2022. So far, in the first 7 weeks or so of the New Year, the institutions have purchased a net 4% worth of the market cap and we think the buying is yet to end. At this point, the institutional buyers control 93% of the stock and are well on their way to making it 100% or as close to it as they can get. The insiders hold about 5.8% and they aren’t really selling, not in any kind of way that makes us worry.
The Analysts Are Buying Freshpet
The analysts, arguably the face of the sell-side community and institutional investing, rate the stock a weak Buy with a price target of $150. This is a 45% premium to recent price action and comes with a notable downtrend in consensus. The consensus of 10 analysts is down in the 30 and 90-day periods with little commentary yet in the wake of the Q4 earnings report. The shoutout we’ve seen comes from Bank of America which maintained a buy rating and a price target of $125. Analyst Bryan Spillane says the stocks multiple versus peers is warranted given the tailwinds, the increases to capacity, the outlook for inflation/supply chain headwinds to tame in the back half of the year, and the belief the 2025 target are still reachable.
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“We finally have the capacity needed to support Freshpet's significant topline growth potential - while also improving the reliability of our operations," commented Billy Cyr, Freshpet's Chief Executive Officer. "Over the past two years, we have invested in significant new capacity and the talent to support it. We plan to use that capacity wisely -- budgeting conservatively to ensure the reliability of our operations in an uncertain environment but also planning aggressively to maximize our growth potential. We believe our plan for 2022 delivers the right balance - keeping us on track to achieve our 2025 goals and enable us to change the way people nourish their pets forever."
Freshpet Moves Higher On Lackluster Results
Freshpet had a good quarter but it was lackluster in relation to the analysts' consensus and our own expectations. The company reported $115.9 million in consolidated revenue for a gain of 37.1% over last year. This is an acceleration on top of last year’s 28% gain and not the last acceleration given the expansion in capacity and growth outlook for the industry. The bad news is that revenue missed the consensus by $0.25 million or 20 basis points which we think is negligible.
The bad news is that margins contracted under the pressure of wages, input costs, logistics, media spending, and wages along with the capacity expansion. The adjusted gross margin contracted by 410 basis points and operating margins shrank as well. This left the GAAP loss at $0.21 per share or $0.07 worse than expected but there is a silver lining. Not only are input and logistics costs expected to subside in the back half of the year but capacity costs will get leveraged over time as the business expands.
The Technical Outlook: Freshpet Puts In A Bottom
Freshpet shares have been bottoming for the last few months and are confirming the bottom now. Price action is up more than 10.0% following the earnings release and above both the neckline of a Head & Shoulders reversal and the 30-day moving average. Assuming the market follows through on this move, we would expect to see the stock move down to test the neckline for support and then move higher, and possibly back above $140 on strong institutional buying.
Companies in This Article:
| Company | Current Price | Price Change | Dividend Yield | P/E Ratio | Consensus Rating | Consensus Price Target |
|---|
| Freshpet (FRPT) | $141.64 | -1.4% | N/A | 159.15 | Moderate Buy | $163.36 |
Experience
Thomas Hughes has been a contributing writer for InsiderTrades.com since 2019.
Areas of Expertise
Technical analysis, the S&P 500; retail, consumer, consumer staples, dividends, high-yield, small caps, technology, economic data, oil, cryptocurrencies
Education
Associate of Arts in Culinary Technology
Past Experience
Market watcher, trader and investor for numerous websites. Founded Passive Market Intelligence LLC to provide market research insights.
