Project Gravity And Consumables Expansion Will Drive Long-Term Earnings Recovery

Catalysts

About Traeger

Traeger designs, manufactures and markets wood pellet grills, consumables and accessories that power an engaged outdoor cooking ecosystem.

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

• Execution on Project Gravity, with a cumulative target of $50 million in run rate savings by the end of 2026, is expected to structurally lower operating expenses and expand adjusted EBITDA margins even on a smaller revenue base.
• Diversifying manufacturing out of China and shifting new SKUs to Vietnam positions Traeger to mitigate tariff volatility over time. This can help restore gross margins as tariff headwinds abate and supply chain efficiencies compound.
• Channel optimization, including exiting unprofitable Costco roadshows, European direct operations and the DTC storefront, should simplify the P and L and redirect volume into higher incremental margin channels, supporting net margin and free cash flow growth.
• Growing consumables penetration, including pellets and sauces with expanding distribution at Walmart and major grocers, deepens recurring revenue from the installed grill base and can help stabilize top line and earnings through cycles.
• Consistent innovation in grills priced under $1,000 and in premium connected models, combined with rising brand awareness, is intended to capture new consumers and an eventual replacement cycle, which may support higher average selling prices and revenue growth as macro and interest rate headwinds fade.

Assumptions

How have these above catalysts been quantified?

• Analysts are assuming Traeger's revenue will grow by 1.3% annually over the next 3 years.
• Analysts assume that profit margins will increase from -18.0% today to 4.0% in 3 years time.
• Analysts expect earnings to reach $24.3 million (and earnings per share of $0.15) by about December 2028, up from $-104.9 million today.
• In order for the above numbers to justify the price target of the analysts, the company would need to trade at a PE ratio of 13.7x on those 2028 earnings, up from -1.4x today. This future PE is greater than the current PE for the US Consumer Durables industry at 11.1x.
• Analysts expect the number of shares outstanding to grow by 4.88% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 12.5%, as per the Simply Wall St company report.

Risks

What could happen that would invalidate this narrative?

• Persistent or escalating tariff pressures on China imports could continue to depress gross margins despite mitigation efforts, limiting the benefit of Project Gravity savings and constraining long-term earnings growth and free cash flow.
• A prolonged slump in high ticket consumer durables driven by elevated interest rates, weak housing turnover and cautious discretionary spending could delay the anticipated grill replacement cycle, capping unit sell-through and top line revenue growth.
• Strategic exits from the Costco roadshow business, the direct to consumer channel and a shift to distributors in Europe may remove important brand building and premium merchandising touchpoints, resulting in lower than expected recapture of the approximately 60 million of foregone sales and pressuring consolidated revenues.
• Heavy reliance on sub 1,000 dollar grills in a down market could train consumers toward lower price points and slow the mix shift back to premium connected models, limiting average selling price expansion and net margin improvement over time.
• Execution risk around Project Gravity, including complex MEATER integration, large scale cost cuts and supply chain relocation to Vietnam, could disrupt operations or underdeliver on the planned 50 million of run rate savings, leaving profitability and earnings recovery below current expectations.

Valuation

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

• The analysts have a consensus price target of $1.49 for Traeger 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 $3.0, and the most bearish reporting a price target of just $1.0.
  
• In order for you to agree with the analysts, you'd need to believe that by 2028, revenues will be $606.1 million, earnings will come to $24.3 million, and it would be trading on a PE ratio of 13.7x, assuming you use a discount rate of 12.5%.
  
• Given the current share price of $1.07, the analyst price target of $1.49 is 28.0% 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.