On Wednesday, Morgan Stanley (NYSE:MS) adjusted its outlook on The Simply Good Foods Company (NASDAQ: NASDAQ:SMPL), reducing the stock's price target to $42 from the previous $46, while maintaining an Overweight rating. The firm's analyst cited a potential for top-line downside versus consensus, attributed to a softer retail performance in the second fiscal quarter of 2024. Despite the adjustment, the long-term growth prospects for the company are still considered attractive.
The Simply Good Foods Company's shares have seen a decline of 10% year-to-date, contrasting with the S&P 500's 9% gain. Currently, the shares are trading at 13.6 times the 2025 estimated enterprise value to EBITDA, which is below the historical average of 16.5 times. Morgan Stanley's stance remains Overweight, as the firm believes the market has already factored in the near-term risks.
Morgan Stanley's analysis suggests that The Simply Good Foods Company is still positioned as a compelling growth narrative within the packaged food industry. The firm's updated estimates underscore the company's potential, particularly with low expectations for the Atkins brand and the anticipation of a re-rating upon signs of recovery.
Additional factors supporting the positive outlook include a strong earnings per share growth trajectory, bolstered by gross margin expansion and share repurchases.
The valuation currently indicates a bullish to bearish skew of +60% to -22%, taking into account the recent decline in stock price. Moreover, The Simply Good Foods Company is strategically poised to benefit from the robust growth in GLP-1 drugs, with management actively targeting this demographic in the upcoming quarters.
The revised price target of $42 reflects a 16 times multiple on the updated 2025 estimated EBITDA, a slight decrease from the prior 17 times multiple due to heightened uncertainty around the Atkins brand's turnaround.
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