Last Update09 Oct 25Fair value Decreased 3.18%
Analysts have revised their price targets for Simply Good Foods lower, noting a reduction from previous estimates by as much as $9. This adjustment reflects slower organic sales growth and ongoing margin pressures from cost inflation and tariffs.
Analyst Commentary
Recent analyst reports on Simply Good Foods reflect a blend of cautious optimism and ongoing concern, with revised price targets capturing both the company's recent performance and forward-looking risks.
Bullish Takeaways
- Bullish analysts highlight that organic sales growth has remained resilient, achieving approximately 3.8% for the recent quarter. This signals underlying demand stability despite a challenging environment.
- The company's guidance for fiscal year 2025 points to continued organic sales growth around 4%, which supports the view that Simply Good Foods is maintaining its competitive position in the market.
- Efforts to defend margin performance in the face of cost pressures align with an ongoing focus on execution and operational efficiency. If sustained, this could support future valuation upside.
Bearish Takeaways
- Bearish analysts point to a trimming of the top end of company guidance as a negative indicator, as it reflects slower-than-expected sales momentum in the latest quarter.
- Concerns persist over continued inflation in costs of goods sold and the impact of tariffs. Both factors are squeezing margins and clouding near-term earnings potential.
- The lowering of price targets by analysts highlights a reassessment of revenue growth and profitability outlook. This suggests more moderate expectations for both valuation appreciation and execution pace in the upcoming quarters.
- With ongoing industry headwinds affecting the broader consumer staples sector, cautious analysts emphasize the potential for another volatile earnings season.
Valuation Changes
- Fair Value: Decreased from $37.70 to $36.50, reflecting a modest reduction in analysts’ estimates of intrinsic company value.
- Discount Rate: Remained unchanged at 6.78%, indicating analysts' risk assessment has held steady.
- Revenue Growth: Lowered slightly from 4.09% to 3.88%, suggesting tempered expectations for top-line expansion.
- Net Profit Margin: Declined from 12.42% to 11.97%, highlighting ongoing margin compression.
- Future P/E: Increased marginally from 22.71x to 22.94x, reflecting the market’s slight adjustment in forward earnings valuation.
Key Takeaways
- Shifting focus from underperforming Atkins to higher-margin Quest and OWYN products can improve net margins and optimize shelf space.
- Expansion of OWYN’s distribution channels and SKUs offers a substantial opportunity for revenue growth and doubled net sales potential.
- Leadership transition, brand declines, and integration uncertainties pose risks to Simply Good Foods' growth, margins, and profitability amid persistent external pressures.
Catalysts
About Simply Good Foods- A consumer-packaged food and beverage company, engages in the development, marketing, and sale of snacks and meal replacements, and other products in North America and internationally.
- The successful launch and scaling of Quest's salty snacks platform, which has grown to a $300 million business, suggests a long runway for further penetration and growth. This could drive future revenue growth for Simply Good Foods.
- OWYN's strong retail takeaway growth and plans to expand distribution channels and SKUs signal a substantial opportunity to double its net sales in the coming years. This expansion is poised to significantly impact revenue growth.
- The continued success and expansion of Quest's innovation, including the launch of Overload Bars and ready-to-drink Milkshakes, are likely to enhance brand awareness and revenue, particularly as household penetration increases.
- Shifting underperforming Atkins SKUs to higher-margin Quest and OWYN products indicates potential for margin improvement and higher net margins due to more efficient use of shelf space with better-performing products.
- Productivity initiatives and synergy captures from the OWYN acquisition, expected to materialize in fiscal '26, are likely to improve gross margins and adjusted EBITDA, enhancing overall earnings growth potential.
Simply Good Foods Future Earnings and Revenue Growth
Assumptions
How have these above catalysts been quantified?- Analysts are assuming Simply Good Foods's revenue will grow by 4.1% annually over the next 3 years.
- Analysts assume that profit margins will increase from 10.0% today to 12.4% in 3 years time.
- Analysts expect earnings to reach $204.1 million (and earnings per share of $2.02) by about September 2028, up from $145.3 million today.
- In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 22.7x on those 2028 earnings, up from 19.5x today. This future PE is greater than the current PE for the US Food industry at 19.5x.
- Analysts expect the number of shares outstanding to grow by 0.32% per year for the next 3 years.
- To value all of this in today's terms, we will use a discount rate of 6.78%, as per the Simply Wall St company report.
Simply Good Foods Future Earnings Per Share Growth
Risks
What could happen that would invalidate this narrative?- The retirement of CFO Shaun Mara could introduce leadership transition risks, potentially affecting financial stability and strategic decision-making in the short term, impacting earnings.
- Persistent declines in the Atkins brand, which represents 30% of net sales, could continue to drag on overall company growth and margins despite attempts at repositioning and innovation, affecting revenue and profitability.
- The integration and future performance of OWYN remain uncertain, with the need to achieve synergy capture starting in fiscal 2026, posing a potential risk to earnings if delays or integration challenges arise.
- Potential tariff and input cost increases could pressure gross margins, despite mitigation efforts, leading to reduced profitability if costs are not offset by price increases or productivity gains.
- The company's reliance on expanding the physical availability of Quest products into new channels carries execution risk, which, if not successful, may prevent anticipated sales and margin improvements, impacting future revenue growth.
Valuation
How have all the factors above been brought together to estimate a fair value?- The analysts have a consensus price target of $37.7 for Simply Good Foods based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $43.0, and the most bearish reporting a price target of just $32.0.
- In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $1.6 billion, earnings will come to $204.1 million, and it would be trading on a PE ratio of 22.7x, assuming you use a discount rate of 6.8%.
- Given the current share price of $28.15, the analyst price target of $37.7 is 25.3% 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.
How well do narratives help inform your perspective?
Disclaimer
AnalystConsensusTarget is a tool utilizing a Large Language Model (LLM) that ingests data on consensus price targets, forecasted revenue and earnings figures, as well as the transcripts of earnings calls to produce qualitative analysis. The narratives produced by AnalystConsensusTarget are general in nature and are based solely on analyst data and publicly-available material published by the respective companies. These scenarios are not indicative of the company's future performance and are exploratory in nature. Simply Wall St has no position in the company(s) mentioned. Simply Wall St may provide the securities issuer or related entities with website advertising services for a fee, on an arm's length basis. These relationships have no impact on the way we conduct our business, the content we host, or how our content is served to users. The price targets and estimates used are consensus data, and do not constitute a recommendation to buy or sell any stock, and they do not take account of your objectives, or your financial situation. Note that AnalystConsensusTarget's analysis may not factor in the latest price-sensitive company announcements or qualitative material.