Vital Farms Stock: Taking Market Share in the Egg Distribution Space (NASDAQ:VITL)

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“A farmer is a magician who makes money out of mud.”― Amit Kalantri

Today we put Vital Farms Inc. (NASDAQ: VITL) in the spotlight for the first time. Someone forwarded me an article from Zero Hedge about potential egg shortages and eggs have seen huge price increases in recent months, so it seemed like time to do our first deep dive on the name. A full analysis follows below.

VITL Stock Chart

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Company presentation:

Vital Farms is called a ‘ethical food company‘ and is based in Austin, TX. The Company provides pasture-raised products such as shell eggs, butter, hard-boiled eggs, ghee, liquid whole eggs and egg bites products in the United States. The company has a network of approximately 300 family farms and its products can be found in some 21,000 points of sale.

Vital Farms Overview

May Company presentation

The stock trades at $10.00 per share and has an approximate market capitalization of $400 million.

Vital Farms Overview

May Company presentation

First quarter results:

On May 5, Vital Farms released its first quarter numbers. The company posted a GAAP loss of four cents per share and revenue rose nearly 32% from the same period a year ago to $77.1 million. Both the top and bottom figures slightly exceeded the consensus.

Vital Farms Q1 2022 Highlights

May Company presentation

Management provided fiscal 2022 revenue guidance of just over $340 million. This was in line with consensus analysis and would represent 30% sales growth over fiscal 2021. Management also said it is targeting adjusted EBITDA of over $13 million for this fiscal year. However, this excludes the costs associated with Vital Farm releasing a line of convenient breakfast products. This would represent an increase of more than 60% on an adjusted EBITDA basis compared to fiscal 2021. The company continues to take impressive market shares in this segment.

Vital Farms - Market Share

May Company presentation

Vital Farms market share

May Company presentation

The company only recorded adjusted EBITDA of $514,000 this quarter, compared to $4.74 million in 1Q 2022. The company blamed pressure on gross margin and higher shipping and distribution costs down this measure.

Analysts’ comments and results:

The analyst community has mixed opinions on the company’s outlook. Since the release of Q1 numbers, three analyst firms, including BMO Capital and Goldman Sachs, have reiterated Hold or Neutral ratings on the stock, and they have price targets on Vital Farms ranging from $14 to $15. $ per share. Jefferies ($23 price target) and Stifel Nicolaus ($22 price target, down from $27 previously) maintained their buy ratings on the company.

Approximately 12% of the shares outstanding are currently held short. The company’s executive chairman bought $96,600 worth of new stock on May 17. The COO of Vital Farms sold more than $650,000 worth of stock in mid-January as shares approached $18.00 each. It’s the only insider trade in the stock so far in 2022. The company ended the first quarter of 2022 with nearly $92 million in cash and marketable securities on its balance sheet after posting a loss. net of $1.5 million for the quarter. The company has no long-term debt.

Verdict:

Current analyst consensus is that the company is earning a nickel per share as revenue rises just over 30% to just north of $340 million. Earnings are expected to triple to 15 cents per share in fiscal 2023, with revenue rising another 21% to $415 million. That leaves the stock selling at 200 times forward earnings and just under 70 times forecast earnings for fiscal 2023.

Vital Farms Logistics

May Company presentation

For what it’s worth, I’m a Milton Friedman-type investor who has a yellow eye on the whole ESG movement, so a company that’s so intensely focused on ‘stakeholder capitalism‘ always raises a red flag for me. Although I applaud the company for raising chickens like my family did when I was a kid. This approach is also the one towards which the consumer is heading.

Growth in natural egg consumption

May Company presentation

Moreover, the huge revenue growth over the past half-decade has yet to result in meaningful profitability. These factors, combined with stretched earnings valuations, make me avoid these stocks, even though I believe we are in the early innings of higher food inflation. I also expect Vital Farms to continue to benefit from egg consumer trends.