Cost Reductions And Diversified Offerings Will Secure Future Operational Strength

Key Takeaways

• Efficiency programs and cost reductions aim to boost net margins and cash flow, improving unit economics and fixed costs.
  
• Strategic investments in customer offerings and product diversification target revenue growth via market expansion and increased order value.
  
• Strategic pivot towards profitability over growth may negatively impact revenues, particularly amid declining orders and macroeconomic challenges.

Catalysts

Operates as meal kit provider for home industry.

• A focus on efficiency programs and cost reductions, with a rightsizing of fixed costs and improvements in unit economics, could lead to enhanced net margins and a stronger cash flow profile.
  
• Strategic investments in improving customer offerings are expected to expand the total addressable market (TAM), offering a potential catalyst for future revenue growth.
  
• Increased contribution margin due to improved direct labor productivity and a streamlined production footprint is anticipated to continue raising margins and earnings.
  
• A shift towards higher ROI marketing strategies, particularly in meal kits, alongside increased average order value (AOV), suggests potential improvements in both net margins and future revenue growth.
  
• The continued product diversification, including ready-to-eat (RTE) expansion, aligns with plans for accelerated revenue growth in H2, contributing to overall top-line growth and increased earnings.

HelloFresh Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming HelloFresh's revenue will decrease by 0.2% annually over the next 3 years.
• Analysts assume that profit margins will increase from -2.3% today to 3.2% in 3 years time.
• Analysts expect earnings to reach €239.2 million (and earnings per share of €0.87) by about May 2028, up from €-176.3 million today.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 7.8x on those 2028 earnings, up from -8.3x today. This future PE is lower than the current PE for the DE Consumer Retailing industry at 16.7x.
• Analysts expect the number of shares outstanding to decline by 4.36% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 4.56%, as per the Simply Wall St company report.

HelloFresh Future Earnings Per Share Growth

Risks

• HelloFresh's net revenue declined by 8.3% year-over-year in Q1, primarily due to a deliberate strategy to focus on profitability over top-line growth. This decline in net revenue could continue to negatively impact overall revenues if not managed effectively.
  
• The company has seen a significant temporary order decline, especially in North America with an 18% drop in meal kit orders, due to a reduction in new customer additions. This trend, if persistent, could affect long-term revenue growth potential.
  
• Exchange rate fluctuations, particularly the weakened U.S. dollar, pose an FX headwind that can impact earnings and profitability as HelloFresh reports in euros.
  
• Marketing expenses have been reduced, especially for meal kits, to achieve higher ROI, potentially impacting the ability to attract new customers, which could slow revenue growth and pressure net margins.
  
• HelloFresh faces macroeconomic uncertainties, such as consumer confidence issues in the U.S. and tariff risks, which could adversely affect revenue and profitability if these conditions deteriorate.

Valuation

• The analysts have a consensus price target of €11.742 for HelloFresh based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of €18.0, and the most bearish reporting a price target of just €8.0.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be €7.6 billion, earnings will come to €239.2 million, and it would be trading on a PE ratio of 7.8x, assuming you use a discount rate of 4.6%.
  
• Given the current share price of €9.15, the analyst price target of €11.74 is 22.0% higher.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.