Sovos Brands Acquisition By Campbell Soup: Analyst Drops To 'Hold' Amid Premium Deal Insights

Needham analyst Matt Mcginley downgraded the shares of Sovos Brands Inc SOVO from Buy to Hold and removed the $22.50 price target.

Sovos agreed to be acquired by The Campbell Soup Company CPB in an all cash deal for $23/share or a 27% premium to Friday's close.

Total enterprise value, according to the analyst, is $2.65 billion ($2.325 billion equity and $315 million in net debt) or 15.8x of the analyst's FY24 EBITDA estimate versus food manufacturer peers at 13x.

 The analyst said that CPB expects to realize $50 million in cost savings over the next two years, with 1/3 of the savings from scale and efficiency gains in the supply chain and 2/3 from eliminating G&A redundancies.

Under SOVO, the analyst believes Rao's brand is on track to generate $1 billion in sales over the medium term, given its pasta sauce distribution gains and expansion into adjacent food categories, including frozen entrées, soup, dry pasta, and its recently launched frozen pizza line.

Campbell's views Sovos as the most compelling growth story in food, as it will provide Campbell's with a premium sauce brand with Rao's to complement its leading mainstream pasta sauce brand, Prego, the analyst opined.

SOVO, the analyst said, will provide CPB high growth brands that operate at scale, leading share in pasta sauce, with the ability to expand into adjacent categories, while transitioning production into the CPB supply chain.

Price Action: SOVO shares are trading lower by 0.04% at $22.55 on the last check Tuesday.