Needham analyst Matt McGinley reiterated a Buy rating on the shares of Simply Good Foods Co (NASDAQ:SMPL) with a price target of $42.

The analyst expects FY23 revenue and EBITDA growth to be firmly weighted to 2H given the company is cycling abnormal customer inventory build and depletion from the prior year.

In FY23, the analyst estimates pricing to be a 7.5% benefit, offset by (1.3)% volume decline for 6.3% sales growth.

Into FY24, the analyst looks for retail sell-in to better align with sell-thru with volume growth to be the primary driver of top-line growth.

Easing input prices will provide for quarterly gross margin expansion for the first time in 7 quarters in 4Q, by the analyst's model, with continued gains likely in FY24.

The analyst looks for 3Q sales growth to be soft based on the timing of shipments and less promo.

The analyst expects 2% YoY revenue growth in 3Q on seasonal inventory draw down and a club channel promotion that didn't repeat, with inventory rebuild likely driving revenue +15-20% in 4Q.

With waning ingredient costs, the analyst expects to see sequential margin improvement through year-end.

Atkins was 48% of FY22 sales and is widely distributed with good SKU depth at retail that the analyst expects to grow near the 3-4% long-term growth rate of the U.S. food industry.

The analyst expects SMPL to sustain a higher revenue growth rate than its peers and an above-average margin. Since SMPL's leverage ratio is the lowest in its peer group, the analyst thinks the company has incremental debt capacity available for M&A.

Price Action: SMPL shares are trading higher by 0.51% at $35.78 on the last check Tuesday.