Simply Good Foods Is Poised For High Growth Despite 11% Stock Pullback: Morgan Stanley Upgrades

Morgan Stanley analyst Pamela Kaufman upgraded the shares of The Simply Good Foods Company SMPL from Equal Weight to Overweight and raised the price target from $37 to $40.

The analyst sees an attractive buying opportunity following the stock's -11% pullback YTD (versus S&P 500 +16%).

The analyst also listed five reasons to buy the stock, which are as follows.

First, the company participates in the higher growth active nutrition category, which has grown at a 14% CAGR over the last five years and benefits from multiple tailwinds, including shifting consumer preferences toward snacking, convenience, and higher protein.

Second, Simply Good Foods offers an above-average topline growth outlook within the Packaged Food category.

Third, the analyst sees an opportunity for SMPL to turn Atkins around as the company steps up marketing, launches innovation in spring 2024, and has hired a new brand manager.

Fourth, the analyst forecasts 11% EPS growth CAGR in 2023-25 as SMPL should see gross margin expansion from the significant moderation in key input costs.

Fifth, according to the analyst, $40 PT is based on 15.5x 2024e EV/EBITDA and 23x 2024 P/E, reflecting SMPL's attractive growth outlook and low leverage of 1.0x net debt/EBITDA.

Price Action: SMPL shares are trading higher by 0.03% at $35.09 on the last check Tuesday.