Wait To Buy The Simply Good Foods Company

Great Results Priced Into The Simply Good Foods Company

The Simply Good Foods Company NASDAQ: SMPL has simply been a good investment for quite some time. The company's growth i's based on America's growing desire for healthier snacks and that story has been compounded by acquisitions and the pandemic. Food-at-home spending is slacking off in the wake of the pandemic but not subsiding to pre-pandemic levels which bodes well for this company and many others in the consumer staples industry. The only problem now is the stock trades at a relatively high valuation and the technical indications aren't bullish for the near term. What this means for us is a possibility to get into the stock at a much lower price.

The Simply Good Foods Company Beat The Consensus

Simply Good Foods Company had a fantastic fiscal Q3. Even accounting for a -.9 % headwind from divestiture, the company reported $284 million in net consolidated revenue for a gain of 32% from last year. This is up 23% sequentially, 104% over the past two years, and beat the consensus by 1600 basis points. The gains, particularly in the 2-year comparison, are due to the acquisition of the Quest brand which performed strongly this quarter as did the Atkins brand. On a segment basis, the North America segment grew 30.7% on increasing mobility of Simply Good Foods customer base while the International segment grew a slower 2.3% due to the aforementioned divestiture. 

Moving down the report, the margin and earnings news are good as well although there is one caveat. The company's GAAP earnings were unfavorably impacted by accounting changes in response to an SEC statement on the consideration for warrants. Those adjustments put GAAP EPS at $0.06 or $0.17 weaker-than-expected but the adjusted earnings are quite strong. The Q3 adjusted earnings of $0.43 beat the consensus by $0.15 and are up 65% from the previous year. The strength and results along with quarter-to-date trends led management to upgrade the outlook for the year as well. The company is now expecting adjusted EPS in a range of $1.20 to $1.25 versus the consensus of $1.03 and last year's $0.91.

The Analysts Are Neutral On Simply Good Foods Company

The analyst community is only neutral on the Simply Good Foods Company although the bias is bullish. Of the 11 analysts covering the stock 5 have a buy rating with a consensus price target that assumes the stock is fairly valued trading near $37. Activity in the wake of the Q3 earnings report suggests consensus may edge higher in the coming weeks but not significantly so. The high price target was set this morning at $42 assuming about 10% upside from recent price action. Analyst Pamela Kaufman of Morgan Stanley sees attractive growth prospects for the company but maintained an equal weight rating on the view that growth has been priced in. Morgan Stanley's price target is $35. 

Technical Analysis: Simply Good Foods Company Is At A Peak

Shares of the Simply Good Foods Company may move higher over the mid to long-term but the near-term outlook is not bullish. Price action surged to a new high in the wake of the Q3 report but profit-taking set in and drove shares sharply lower. The candle formed is a Dark Cloud Cover compounded by divergences in the indicators that suggest underlying weakness within the market. In our view, the stock is ripe for a technical sell-off that should take it down to the $36 level if not lower. A move below the short-term moving average would be bearish and could take the stock down to $32 before finding firm support.