Utz Brands Has The Potential To Transition From Regional Company To National Competitor, Says Analyst

Needham analyst Matt McGinley initiates coverage on Utz Brands Inc UTZ with a Buy rating and a price target of $20, adding it to the Needham Conviction List for 2024.

With Utz's marketing spend set to increase about 3x, and its focus on four power brands (Utz, On The Border, Zapp's, and Boulder Canyon), the analyst expects greater relevance of the Utz brand portfolio to consumers in the coming years.

Utz's growth strategy leverages brand investment, marketing, and distribution expansion beyond its core Eastern U.S. markets, says the analyst.

Also See: Snack Company Utz Beats Q3 Earnings, Optimizes Supply Chain And Upgrades Outlook

Utz aims to achieve 4% - 5% annual sales growth and a 3-point improvement in EBITDA rate over three years, anchored by $135 million in cumulative supply chain savings.

While internal cost saving initiatives are unlikely to align perfectly with externally facing reinvestment, supply chain restructuring and productivity gains are highly achievable drivers to boost margins and cash flow, according to the analyst.

Utz trades at an EV/EBITDA multiple of 15x the analyst's FY24 estimate or a 2.5 point premium to food manufacturing peers. 

The analyst expects Utz to outpace the growth of the group by 1-2 points, but expects the company's margin gains to drive EBITDA growth 2x that of peers.

The analyst believes Utz has the right playbook and new team in place to transition from a family-run regional company to a national competitor in the salty snack category. 

Related: Crunch Time For Utz: Analyst Predicts Flavorful Growth And Cost Efficiency

Price Action: UTZ shares are trading higher by 6.11% at $17.37 on the last check Wednesday.

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