Company Reports

With its fresh products, Freshpet is well positioned to capitalize on continued growing pet ownership along with humanization trends by expanding its store footprint and growing its sales-per-store. It primarily focuses on the $37 billion US dog food market (2023 estimate according to Euromonitor) through company-owned and -maintained refrigerators in 27,000 grocery, mass and club, pet specialty, and natural stores. The company estimates a market opportunity of at least 30,000 stores, though we forecast at least 35,000 by the end of our 10-year forecast period given the 46,000 supermarkets in the US alone, not including pet specialty stores.

No-moat Freshpet reported impressive full-year 2023 net sales growth of 29% to $767 million, ahead of its guidance for $755 million and our forecast for $759 million. We were equally impressed that the adjusted EBITDA margin widened 530 basis points to 8.7%, 60 basis points better than our forecast. We expect to raise our fair value estimate by a mid-single-digit percentage, reflecting better profitability and lower capital spending partially offset by higher media spending. Shares were up 19% intraday on the results, leaving them well above our fair value.

We’re initiating coverage of pet food producer Freshpet with a fair value estimate of $77 per share and a no-moat rating. Our fair value estimate implies about 39 times enterprise value/adjusted EBITDA off our 2024 estimates, with the high multiple reflecting the company’s current growth stage. At the current market price, we think shares are fairly valued. For pet food exposure, Blue Buffalo-owner narrow-moat General Mills looks undervalued, at an 18% discount to our valuation.

With its fresh products, Freshpet is well positioned to capitalize on continued growing pet ownership along with humanization trends by expanding its store footprint and growing its sales-per-store. It primarily focuses on the $37 billion U.S. dog food market (2023 estimate according to Euromonitor) through company-owned and -maintained refrigerators in 26,000 grocery, mass and club, pet specialty, and natural stores. The company estimates a market opportunity of at least 30,000 stores, though we forecast about 35,000 by the end of our 10-year forecast period given the 46,000 supermarkets in the U.S. alone, not including pet specialty stores.