Master Action Plan And Market Expansion Will Strengthen Future Prospects

Key Takeaways

• Strategic focus on leveraging wholesale and retail segments and expanding into new markets positions SpartanNash for revenue growth and increased market penetration.
  
• Cost leadership measures and transformation initiatives in supply chain and marketing are expected to enhance margins and drive earnings growth.
  
• SpartanNash faces revenue and profitability challenges due to declining sales, increased costs, and rising leverage from acquisitions, affecting financial flexibility and future growth potential.

Catalysts

Distributes and retails grocery products in the United States of America.

• SpartanNash's Master Action plan, focusing on capturing market share through leveraging its wholesale and retail segments, positions the company well for future revenue growth and increased market penetration.
  
• The ongoing transformation initiatives, including supply chain, merchandising, and marketing innovations, are expected to continue enhancing margins, driving EBITDA growth.
  
• SpartanNash's expansion into ethnic and convenience store markets offers a potential boost in revenue and profitability due to higher growth rates and margins associated with these segments.
  
• The integration of recent acquisitions, alongside a strategic focus on both organic and inorganic growth, is anticipated to contribute to future revenue and earnings expansion.
  
• Implementation of a new cost leadership plan, including automation and efficiency improvements, is likely to lead to cost savings and higher net margins, supporting improved earnings.

SpartanNash Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming SpartanNash's revenue will grow by 1.4% annually over the next 3 years.
• Analysts assume that profit margins will increase from 0.0% today to 0.6% in 3 years time.
• Analysts expect earnings to reach $58.7 million (and earnings per share of $1.75) by about March 2028, up from $299.0 thousand today.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 14.6x on those 2028 earnings, down from 2300.3x today. This future PE is lower than the current PE for the US Consumer Retailing industry at 24.3x.
• Analysts expect the number of shares outstanding to decline by 0.37% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 8.26%, as per the Simply Wall St company report.

SpartanNash Future Earnings Per Share Growth

Risks

• SpartanNash experienced a slight decrease in full-year net sales, akin to a dip of less than 2%, which suggests potential challenges in increasing revenue over time.
  
• The company reported a goodwill impairment charge related to underperformance in its legacy retail business, signaling potential risks to future net margins and earnings.
  
• The wholesale segment experienced a decrease in net sales of 2.1%, primarily due to reduced case volumes, which could indicate potential ongoing risks to revenue from declining volumes in national accounts and independent retailers.
  
• Declining sales volumes within the Wholesale segment and increased corporate administrative expenses negatively impacted adjusted EBITDA, hinting at challenges in maintaining profit margins.
  
• The rising leverage ratio, from 2.4x to 2.8x, due to acquisitions, indicates increased borrowing costs, potentially impacting net earnings and limiting financial flexibility for growth investments.

Valuation

• The analysts have a consensus price target of $20.5 for SpartanNash based on their expectations of its future earnings growth, profit margins and other risk factors.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $10.0 billion, earnings will come to $58.7 million, and it would be trading on a PE ratio of 14.6x, assuming you use a discount rate of 8.3%.
• Given the current share price of $20.37, the analyst price target of $20.5 is 0.6% 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.