Revival Of Atkins Brand To Propel Simply Good Foods' Growth: Analyst

Mizuho analyst John J. Baumgartner reiterated a Buy rating on the shares of The Simply Good Foods Company SMPL, lowering the price target from $45 to $42.

The company's third-quarter FY23 sales increased 2.6% year over year to $324.79 million, beating the consensus of $321.38 million. Adjusted EPS of $0.44 surpassed the consensus of $0.41.

The analyst cautioned that SMPL's nutritional snacking brand Atkins is bottoming from weaker innovation/lost distribution and elasticity.

Atkins has remained softer for longer than expected, notes the analyst.

Baumgartner thinks elasticity has been more pronounced for nutrition products traditionally associated with weight management, further impacting selling velocity. 

However, new products will continue to enter the market through next spring, with expanded capacity enabling an imminent snacks/ cookies category re-launch.

The analyst believes normalized sales growth for the brand may be +7% (including contributions from adjacent snacking categories) and view Atkins as a source for potential NTM revenue upside. 

Also Read: Opportunity For M&A Seen In Simply Good Foods' Low Leverage Ratio, Analyst Points Out

Baumgartner sees limited risk of growth breaking down in the short term as marketing spending increases and addresses creative and media mix components.

CEO-elect Geoff Tanner is aggressively focused on growth, and cost deflation provides optionality for NTM reinvestment without re-basing margins, notes the analyst.

Baumgartner lowered FY23 revenue estimates from $1.243 billion to $1.240 billion. The company trimmed EBITDA estimates from $245 million to $244 million. 

For FY24, the analyst reduced revenue estimates from $1.369 billion to $ 1.331 billion. The EBITDA estimates have been reduced from $278 million to $265 million.

Price Action: SMPL shares are trading higher by 1.44% to $36.29 on the last check Friday.