High Protein Snacking Trends Will Support A Stronger, More Focused Business Over Time

Catalysts

About Simply Good Foods

Simply Good Foods focuses on high protein, low sugar and low carb snacks and beverages across its Quest, Atkins and OWYN brands.

What are the underlying business or industry changes driving this perspective?

• Quest and OWYN now account for about three quarters of net sales, with both brands reporting double digit growth in fiscal 2025. This concentrates the portfolio in segments that management describes as high growth and is likely to be most supportive of revenue and earnings over time.
• The company positions itself at the center of a broad shift toward high protein, low sugar and low carb eating. The nutritional snacking category has been growing at least high single digits for 5 years and 13% in 2025, which directly feeds into Quest, Atkins and OWYN demand and can support revenue and scale driven margin efficiencies.
• Quest salty snacks consumption grew 34% for the full year and is targeted to become Quest’s largest platform by the end of fiscal 2026. Simply Good Foods is funding a second production line for chips capacity, which can support higher volumes, better utilization and potentially stronger gross margin and EBITDA.
• OWYN’s clean label, allergen free positioning and low aided awareness of about 20%, alongside shake ACV in the mid 60s and powders ACV at 26%, leave substantial room for household penetration gains. The company plans to pursue these gains with higher trade and marketing spend, potentially lifting future revenue and brand level profitability as fixed costs are absorbed.
• The asset light model, strong cash generation of about US$178 million from operations in fiscal 2025 and low net leverage of roughly 0.5x adjusted EBITDA give Simply Good Foods room to keep investing in capacity, marketing and potential M&A, which can reinforce category positions and support adjusted EBITDA and earnings growth.

Assumptions

How have these above catalysts been quantified?

• This narrative explores a more optimistic perspective on Simply Good Foods compared to the consensus, based on a Fair Value that aligns with the bullish cohort of analysts.
• The bullish analysts are assuming Simply Good Foods's revenue will remain fairly flat over the next 3 years.
• The bullish analysts assume that profit margins will increase from -7.5% today to 17.9% in 3 years time.
• The bullish analysts expect earnings to reach $251.5 million (and earnings per share of $2.05) by about July 2029, up from -$105.7 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bullish analyst cohort, the company would need to trade at a PE ratio of 12.3x on those 2029 earnings, up from -11.8x today. This future PE is lower than the current PE for the US Food industry at 17.0x.
• The bullish analysts expect the number of shares outstanding to decline by 7.0% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.11%, as per the Simply Wall St company report.

Risks

What could happen that would invalidate this narrative?

• Atkins is facing structural pressure in the nutritional snacking aisle, with consumption declining 10% for the year and expected to decline about 20% in fiscal 2026 as retailers cut lower velocity SKUs and repurpose space to other brands. This could weigh on consolidated revenue and limit the benefit of portfolio mix over time, affecting earnings.
• Simply Good Foods is heavily exposed to cocoa and imported inputs, and has already contracted cocoa at historically high prices and faces tariffs that management expects to reduce gross margin by 100 to 150 basis points in fiscal 2026. If inflation or trade costs stay elevated for longer than planned, gross margins and net margins could remain under pressure and keep earnings growth subdued.
• Owning a high growth brand like OWYN does not remove product and brand risk. The pea protein quality issue that hurt taste, texture and ratings on affected lots required heavier trade and marketing spend to repair, and similar issues in the future could slow household penetration gains, increase costs and soften revenue growth and margins.
• Quest and OWYN now make up nearly three quarters of net sales and are positioned around high protein, low sugar, low carb trends. Any long term change in consumer preferences, retailer priorities or competitive intensity in this broader nutritional snacking category could slow category growth, constrain shelf space gains and pressure revenue and adjusted EBITDA.

Valuation

How have all the factors above been brought together to estimate a fair value?

• The assumed bullish price target for Simply Good Foods is $34.56, which represents up to two standard deviations above the consensus price target of $17.5. This valuation is based on what can be assumed as the expectations of Simply Good Foods's future earnings growth, profit margins and other risk factors from analysts on the bullish end of the spectrum.
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $39.0, and the most bearish reporting a price target of just $12.0.
• In order for you to agree with the more bullish analyst cohort, you'd need to believe that by 2029, revenues will be $1.4 billion, earnings will come to $251.5 million, and it would be trading on a PE ratio of 12.3x, assuming you use a discount rate of 7.1%.
• Given the current share price of $13.73, the analyst price target of $34.56 is 60.3% higher.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.