Expanding Coffee Ties With Nespresso Will Open New Markets

Key Takeaways

• Strategic partnerships and global brand activation are key catalysts for revenue growth through increased visibility and market presence.
  
• Focus on cost efficiencies and production optimization aims to enhance margins and support long-term financial goals.
  
• Oatly faces growth constraints due to foreign exchange risks, competitive pressures, underperforming products, pricing challenges, and the need for supply chain optimizations.

Catalysts

An oatmilk company, provides a range of plant-based dairy products made from oats in Europe, the Middle East, Africa, the Asia Pacific, Latin America, the United States, Canada, Mainland China, Hong Kong, and Taiwan.

• Oatly is focusing on increasing its relevance to customers and consumers by expanding into the growing coffee and beverage space, which is expected to drive future revenue growth.
  
• The company's collaboration with Nespresso and the activation of its brand at a global scale are considered significant catalysts that can positively impact revenue through increased product visibility and market penetration.
  
• Oatly is aggressively pursuing cost efficiencies in its supply chain and SG&A to improve margins and fuel demand-driven investments, which are expected to enhance net margins.
  
• The continued distribution expansion in North America, despite current setbacks, presents an opportunity for future revenue growth, supported by the strategic allocation of resources to align with market demands.
  
• Optimizing production efficiency and negotiating contracts are anticipated to improve gross margins, contributing to Oatly’s long-term goal of achieving a 35% to 40% gross margin.

Oatly Group Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Oatly Group's revenue will grow by 4.5% annually over the next 3 years.
• Analysts are not forecasting that Oatly Group will become profitable in next 3 years. To represent the Analyst Price Target as a Future PE Valuation we will estimate Oatly Group's profit margin will increase from -24.5% to the average US Food industry of 6.3% in 3 years.
• If Oatly Group's profit margin were to converge on the industry average, you could expect earnings to reach $59.1 million (and earnings per share of $1.97) by about May 2028, up from $-201.9 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 12.9x on those 2028 earnings, up from -1.5x today. This future PE is lower than the current PE for the US Food industry at 17.5x.
• Analysts expect the number of shares outstanding to grow by 0.63% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 6.93%, as per the Simply Wall St company report.

Oatly Group Future Earnings Per Share Growth

Risks

• Oatly's reliance on foreign markets might expose it to currency exchange headwinds, which could impact revenues.
  
• Competitive pressure in the North American market and declining conversion rates may limit revenue growth opportunities.
  
• Some product lines, like frozen SKUs, underperformed expectations, leading to stock rationalization, which could affect sales and revenue in near term.
  
• Price/mix declines in certain regions, such as Europe, indicate potential challenges in passing on costs to consumers, affecting net margins.
  
• Supply chain improvements and cost reductions are necessary for margin expansion; failure to sustain these improvements could impact earnings.

Valuation

• The analysts have a consensus price target of $20.743 for Oatly Group 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 $48.0, and the most bearish reporting a price target of just $10.0.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $939.7 million, earnings will come to $59.1 million, and it would be trading on a PE ratio of 12.9x, assuming you use a discount rate of 6.9%.
  
• Given the current share price of $10.28, the analyst price target of $20.74 is 50.4% 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.