Freshpet’s (NASDAQ: FRPT) Q1 results led the market to a 10% gain, and more fresh highs are coming. The primary takeaway is that volume gains underpin growth and provide significant leverage for this business. Headwinds remain; costs and quality are always an issue, but the stage is set for sustained improvement in sales and margin.
Analysts are taking note. The revisions are positive and leading the market higher, so it may not be long until the next high is set. The question now is how high the stock can go before topping out, and it is quite a way. The post-release pop put the market above a critical resistance and pivot point, opening the door to retesting the all-time highs. That’s a gain of $60 from current levels or about 50%, which could be reached in the next 12 to 18 months.
Analysts Raise Targets for Freshpet, Forecast Fresh Highs
The near-term outlook is just as bullish. Marketbeat.com tracks three revisions within the first 24 hours of the release, and they are all positive. The most significant details are that the revisions are all above the consensus and current price action, and they are equal at $135, implying a 12.5% upside.
The post-release revisions follow the trend set before the release, including three upward revisions into the range of $135 to $138, the highest price target issued by an analyst. The takeaway is that analysts' sentiment is converging into a narrow range, with the last six of 14 estimates within that range, leading the market for the stock higher. Because the already narrow range is narrowing even more, investors can assume that conviction is increasing within the analysts' community.
Freshpet Has Solid Quarter, Gives Cautious Guidance
Freshpet reached an inflection point in Q3/Q4 2023 and is gaining momentum. The company reported $222.8 million in net revenue for Q1, a gain of 33.6% over last year. That is up from the previous quarter’s 29% growth and the 26% posted last year. The strength is due almost entirely to volume gains, which also accelerated sequentially by 500 basis points to 30%. Revenue outpaced the consensus by 350 basis points and significantly leveraged the bottom line.
The margin news is the most impressive. The company widened its gross and operating margins on increased sales leverage, lower input costs, fewer quality control issues, and lower logistics costs. The gross margin widened by 910 bps GAAP, 680 bps adjusted, and SG&A costs fell by 750 bps GAAP and 500 bps adjusted to leave the company in surprisingly profitable conditions. GAAP earnings of 37 cents outpaced consensus by more than 50 cents to negate the expected loss and reverse losses posted last year.
Guidance is favorable for this discretionary stock. The company maintained its revenue forecast of at least $950 million in sales, shy of the consensus, but likely a cautious guide given the top-line strength and building momentum. Freshpet raised its guidance for EBITDA to at least $120 million, up from a high of $110, and it may also be cautious because of the focus on operational quality.
Freshpet Enters Complete Reversal
The price action in FRPT stock began rebounding in late 2023 and is gaining momentum. The post-release action has the market above critical resistance at $117.50, which is now market support, and it looks solid. Assuming the market continues to support the price at this level, it should begin to move higher soon. The $117.50 level is the mid-point of a multi-year trading range and opens the door to a rally that could take the market to the range top. If not, this market could fall below critical support/previous resistance and remain range-bound until later in the year.
Institutions have been buying this stock on balance for the last year and helped to lift the market. Investors can assume that institutional investors will continue to support this market over time and are likely buyers should the stock price fall. Critical support targets are $117.50, $103.50, and $91.50.
