After years of suffering through the pandemic bubble and its bursting, the supply chain, and the demand issues it caused, Freshpet NASDAQ: FRPT looks ready to start a fresh rally. The company has been working hard to expand its operational capabilities over the last year, and those efforts are now paying off.
Not only can investors expect start-up costs to ease but for increased volume and the earnings leverage that will come with it. This means Freshpet could start reporting GAAP profitability very soon, and that has the stock set up for a reversal. The price action in Freshpet has corrected from the lofty highs near $180 to a more reasonable valuation near $60.
The latest price action suggests a Head & Shoulders Reversal is in play, and the Q4 results and guidance for 2023 are consistent with this move.
The analysts have yet to speak up, Marketbeat.com’s analyst tracking tools have not picked up any post-release commentary yet, but the sell-side action over the past year is telling. The analysts have lowered the consensus price target by more than 50%, but it has held firm over the last 3 months while the Moderate Buy rating has firmed.
The current consensus target is about $77.65, equal to a 27% upside for the stock, and the institutions are buying too. The institutions have netted over $0.60 billion in the last 12 months, worth about 20% of the stock. They hold about 90% of the company, and there is also a short interest to consider.
The short interest in Freshpet was running near 12.0% ahead of the Q3 release and may provide fuel to support the price action. The Q4 results were not game-changing but showed progress on the company’s goals. Fintel.io reports the off-exchange short-interest, including dark pools, is running above 40%, which puts the stock in position for a squeeze given a suitable catalyst.
Freshpet Beats And Guides Strong For 2023
Freshpet had a good quarter despite the headwinds of inflation, rising labor costs, and issues with quality. The company reported $165.8 million in net revenue for a gain of 43% over last year that, beat the consensus by 950 basis points. The gains in revenue were driven by pricing actions intended to offset inflation, velocity (brand momentum), and distribution gains versus last year. To put the strength into perspective, this is the 5th consecutive year for double-digit revenue growth in Q4 and the 5th consecutive year that growth has accelerated.
The margin was positively affected by the top-line strength at all levels. While gross profit shrank on a YOY basis, it exceeded expectations and resulted in earnings improvement compared to last year. The mitigating factors within the margin shrinkage are that start-up costs will ease and quality issues should be controlled now that the Ennis Kitchen is up and running.
Regarding adjusted EBITDA, earnings are up 147% compared to last year, and the net loss shrank by 69% to only $2.9 million. This is primarily due to a reduced SG&A attributed to lower ad-spend and leverage, which will only improve in the coming quarters.
The guidance is the only area of weakness but still strong, considering it could be worse. The company expects revenue to run near $750 million for 2023, slightly below the $754 consensus estimate. The revenue miss is slim and offsets by the earnings outlook. Adjusted EBITDA Is expected to more than double, and the top-line estimate could be cautious so earnings could easily outpace the guidance.
The Technical Outlook: A Reversal From Down To …?
Shares of Freshpet are set up for a reversal, but investors may be disappointed with the outcome. The stock is in a reversal, but the post-release action is a little mixed, so this may be a reversal from down to sideways and not down to up. The hurdle that needs to be crossed is the $70 level. If the market can get above there a more sustained recovery may follow. If not, this stock may wallow at the current levels until more information is available.
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