Investments In Boulder Canyon Will Attract Health-Conscious Consumers

Key Takeaways

• Utz Brands focuses on geographical expansion, supply chain optimization, and new distribution channels to drive revenue and improve margins.
  
• Investments in health-oriented brands and productivity enhancements aim to boost consumer interest and EBITDA margin growth.
  
• Increased competition and sluggish market growth may pressure revenue and margins, with potential risks in market share and investment returns from expansion efforts.

Catalysts

Engages in manufacture, marketing, and distribution of snack foods in the United States.

• Utz Brands plans to expand its market share in new geographical areas with increased distribution and marketing support, potentially driving revenue growth.
  
• The company is optimizing its supply chain, which includes capital investments in automation and logistics improvements. These efforts are expected to enhance operating efficiencies, likely improving net margins.
  
• Utz's productivity program aims to generate significant cost savings, contributing to EBITDA margin expansion through 2026. This can enhance earnings even if sales growth is modest.
  
• The introduction of new price pack architectures and expansion in channels like club and convenience stores could attract more consumers and boost revenues.
  
• Investments in Boulder Canyon, a brand aligned with health trends, are anticipated to continue driving consumer interest and contribute to revenue expansion in the better-for-you snack segment.

Utz Brands Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Utz Brands's revenue will grow by 2.6% annually over the next 3 years.
• Analysts assume that profit margins will increase from 1.1% today to 5.3% in 3 years time.
• Analysts expect earnings to reach $81.1 million (and earnings per share of $1.37) by about March 2028, up from $16.0 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 44.1x on those 2028 earnings, down from 71.7x today. This future PE is greater than the current PE for the US Food industry at 17.3x.
• Analysts expect the number of shares outstanding to grow by 5.63% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 6.21%, as per the Simply Wall St company report.

Utz Brands Future Earnings Per Share Growth

Risks

• The category growth assumption for fiscal '25 is projected to be around 0% to 1%, which is only slightly better than flattish, indicating a sluggish market environment that may impact revenue growth.
  
• There is a noted modest headwind from pricing in fiscal '25, exacerbated by increased competitiveness, which could impact net margins as the company may need to offer more promotions or bonus packs.
  
• Weakness in the dips and spreads segment of the business has been persistent and may continue to act as a drag on sales performance, potentially impacting total revenue.
  
• The competitive environment in tortilla chips, particularly from larger competitors, presents a risk to maintaining or growing market share, which can affect both revenues and net earnings.
  
• The company's plan to expand distribution, particularly into the West, requires significant investment, and failure to achieve expected market penetration could impact both revenue and return on investment, affecting overall earnings.

Valuation

• The analysts have a consensus price target of $18.0 for Utz Brands 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 $20.0, and the most bearish reporting a price target of just $16.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $1.5 billion, earnings will come to $81.1 million, and it would be trading on a PE ratio of 44.1x, assuming you use a discount rate of 6.2%.
• Given the current share price of $13.31, the analyst price target of $18.0 is 26.1% 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.