Analyst Foresees Single-Digit Volume Growth For Vital Farms Amid Bird Flu Induced Supply Shortage

Needham analyst Matt McGinley reiterated a Hold rating on the shares of Vital Farms Inc VITL.

The analyst estimates Q2 sales growth of 27% y/y to $105 million, driven by a combination of 20% price and lack of promotion with mid-to-high single digit volume gains.

The analyst also expects the gross margin to improve by +490 basis points from 2Q22 to 35.0%, on pricing and volume growth with a modest Q/Q step down in rate driven by less margin on breaker egg sales.

The analyst believes limited industry egg supply caused by bird flu led to inventory build at retail and consumer trade up to Vital Farms' eggs given out of stocks.

The analyst expects average volume growth in the single digits for the next few quarters compared to the 25%+ growth achieved over the last year.

The analyst sees volume growth to continue into '24 driven by retail distribution gains and consumer trial and repeat purchases as normalized promotion and advertising resumes in 2H.

The analyst also sees '23 shaping up to be a strong year for VITL, with revenue and margin gains weighted to 1H.

Concern regarding volume growth has sent the stock down (25)%+ since it reported in early May, which reduced its EV/EBITDA multiple on the analyst’s ''23 estimate from 17x to 10x.

With retailers building egg inventory in 2H22 and 1Q23 amid industry supply shortages caused by the bird flu, the analyst expects softer volume gains in 2Q and 4Q.

Price Action: VITL shares are trading lower by 6.58% at $10.44 on the last check Friday.