Upgrade to Buy#
Simply Good Foods Co (NASDAQ:SMPL) has been upgraded from Hold to Buy by Jefferies. The brokerage believes the company's stock is undervalued, especially given the challenges faced in some areas of its nutrition-focused product lineup.
Valuation Insights#
Jefferies has set a price target of $22 for Simply Good Foods. The stock is currently trading at about five times its expected earnings before interest, taxes, depreciation, and amortization (EBITDA) for the next year. This valuation has dropped significantly over the past year, which Jefferies argues does not reflect the strength of the company’s core brands.
Growth in Protein Products#
The company has seen a long-term shift in consumer preferences towards protein-rich and convenient food options. Over the past four years, Simply Good Foods has experienced revenue growth of approximately 10% annually. However, this growth has not been uniform across all brands. The Quest brand, known for its nutrition bars and protein snacks, has been a major contributor, growing at about 17% each year. In contrast, the Atkins brand, focused on weight management, has faced declining sales as consumers explore alternative fitness products.
Challenges Ahead#
Jefferies also highlighted slower growth for OWYN, a newer plant-based protein shake brand that has encountered product quality issues, affecting consumer perception. Additionally, Simply Good Foods faces increased competition and rising costs for ingredients like cocoa and whey, which could impact profit margins and necessitate higher marketing expenses.
Future Projections#
Looking ahead, Jefferies anticipates a slowdown in sales and profit growth, projecting a revenue increase of about 2% annually from fiscal 2026 to 2028, with profits expected to grow by around 1% during the same period. Despite these challenges, Jefferies believes the current stock valuation already accounts for these risks, suggesting potential for upside even with conservative growth expectations.