Wells Fargo Initiates Bullish Rating On Simply Good Foods

Given its portfolio of low-carb and low-sugar snacking options, Simply Good Foods Co SMPL is well-positioned to benefit from favorable U.S. dietary and wellness trends, according to Wells Fargo.

The Analyst

Wells Fargo’s John Baumgartner initiated coverage of Simply Good Foods with an Outperform Rating and a price target of $35.

The Thesis

Simply Good Foods enjoys brand and marketing leadership in a large addressable market that is poised for mid-single-digit growth, Baumgartner said in the initiation note.

With an estimated 93 million American adults being obese and over 100 million being either diabetic or prediabetic, the demand for nutritional snacking is accelerating, the analyst mentioned.

He added that this trend is aligned with the company’s Atkins brand, which has expanded from the traditional diet program market to “non-programmatic” dieters. Low-sugar snacking becoming mainstream means a fourfold increase in Atkins’ addressable market.

Baumgartner expects the trend of healthy snacking to contribute over $700 million in revenue by fiscal 2024.

He further mentioned that Simply Good Foods could enhance its portfolio with mergers and acquisitions. The company had already agreed to acquire Quest Nutrition to expand its healthy snacking capabilities and management had guided to cost synergies of $20 million over three years.

The analyst added that the Quest acquisition “complements Atkins ‘lifestyle’ image with a core consumer who is younger and more active” and could generate double-digit revenue growth as its household penetration rises.

Price Action

Shares of Simply Good Foods had risen 0.8% to $30.15 at time of publishing on Monday.

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