Project Gravity And Tariff Shifts Will Reshape Margins And Recurring Revenue

Catalysts

About Traeger

Traeger designs and sells wood pellet grills, consumables and accessories for outdoor cooking.

What are the underlying business or industry changes driving this perspective?

• Project Gravity targets a cumulative $50 million run rate cost saving by the end of 2026. If executed as described, this could structurally lower the expense base and support higher net margins and earnings on a smaller revenue base.
• The shift of new grill production to Vietnam and broader diversification away from China, combined with continued supply chain efficiencies, is intended to offset a significant portion of the approximately $60 million tariff exposure and may support future gross margin stability and cash flow.
• Strong double digit growth in Traeger branded accessories and 12% growth in consumables revenue, supported by expanded distribution into retailers such as Walmart and large grocery partners, points to an expanding recurring revenue stream that can smooth overall revenue and EBITDA.
• The integration of MEATER into Traeger’s Utah headquarters with reduced U.K. headcount is set up to simplify operations and reshape MEATER’s P&L. This is intended to free resources to pursue retail channel expansion and new product development, which can benefit both revenue and segment level profitability.
• Channel optimization, including exiting lower margin Costco roadshows, sunsetting unprofitable SKUs and shifting Europe to an asset light distributor model, is aimed at prioritizing higher return channels and could support healthier gross margin and adjusted EBITDA over time.

Assumptions

How have these above catalysts been quantified?

• This narrative explores a more optimistic perspective on Traeger compared to the consensus, based on a Fair Value that aligns with the bullish cohort of analysts.
• The bullish analysts are assuming Traeger's revenue will grow by 1.5% annually over the next 3 years.
• The bullish analysts assume that profit margins will increase from -21.8% today to 4.0% in 3 years time.
• The bullish analysts expect earnings to reach $21.4 million (and earnings per share of $7.71) by about July 2029, up from -$111.5 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bullish analyst cohort, the company would need to trade at a PE ratio of 14.3x on those 2029 earnings, up from -1.7x today. This future PE is greater than the current PE for the US Consumer Durables industry at 13.0x.
• The bullish analysts expect the number of shares outstanding to grow by 2.36% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 12.46%, as per the Simply Wall St company report.

Risks

What could happen that would invalidate this narrative?

• Tariffs are already pressuring gross margins, with third quarter gross margin at 38.7% after $8 million of tariff costs, and management only expects to offset about 80% of approximately $60 million tariff exposure in fiscal 2025. Any prolonged or higher tariff burden could keep gross margin and earnings under pressure.
• Project Gravity is heavily focused on cost cutting, including $50 million targeted run rate savings and exiting some channels. If these changes disrupt execution or fail to translate into higher quality growth, the company could become smaller without a corresponding improvement in long term net margins and cash earnings.
• Management plans to walk away from roughly $60 million of revenue tied to channel optimization and only expects a gradual recapture over several years. If consumer demand or retail partners do not absorb this volume as hoped, total revenue and operating leverage could be structurally lower than bullish expectations.
• The decision to exit the direct to consumer business on traeger.com and rely more on retailers and distributors, especially with a shift to a distributor model in Europe, reduces direct control over the customer relationship and pricing. This could limit brand pricing power and weigh on both revenue and net margins over time.
• Management describes the grill market as slightly down and highlights pressure on higher ticket grills, with growth skewed to sub $1,000 units and continued headwinds for high ticket discretionary products. A prolonged weak replacement cycle or sustained consumer trade down could constrain grill revenue growth and delay the move from net losses to consistent earnings.

Valuation

How have all the factors above been brought together to estimate a fair value?

• The assumed bullish price target for Traeger is $72.42, which represents up to two standard deviations above the consensus price target of $45.75. This valuation is based on what can be assumed as the expectations of Traeger's future earnings growth, profit margins and other risk factors from analysts on the bullish end of the spectrum.
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $75.0, and the most bearish reporting a price target of just $37.0.
• In order for you to agree with the more bullish analyst cohort, you'd need to believe that by 2029, revenues will be $533.3 million, earnings will come to $21.4 million, and it would be trading on a PE ratio of 14.3x, assuming you use a discount rate of 12.5%.
• Given the current share price of $67.93, the analyst price target of $72.42 is 6.2% higher. The relatively low difference between the current share price and the analyst consensus price target indicates that they believe on average, the company is fairly priced.
• 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.