Marketing And Innovation Will Drive Future Success Of Brands Like On The Border And Boulder Canyon

Key Takeaways

• Utz Brands is boosting organic growth through marketing, product innovation, and expanding distribution, potentially driving significant future revenue growth.
  
• Investments in productivity and automation are enhancing supply chain efficiency, likely benefiting margins and earnings.
  
• Utz Brands faces potential revenue challenges due to stagnation in consumption, heightened competition, and the uncertainty of success in new product offerings and geographic expansion.

Catalysts

Engages in manufacture, marketing, and distribution of snack foods.

• Utz Brands is expecting a significant sequential acceleration in organic growth for the fourth quarter of the year, driven by increased marketing efforts, product innovation, seasonal shipment execution, and expanded distribution. This is likely to impact future revenue growth.
  
• The company is gaining distribution in new geographies, particularly for its On The Border brand, which could lead to increased market penetration and higher top-line growth. Distribution gains in core and expansion markets suggest a positive impact on future revenues.
  
• Utz has been making investments in productivity programs and automation, particularly with the introduction of new capacity at Kings Mountain to support the Kettle business. This is expected to enhance supply chain efficiency and could positively influence net margins and earnings.
  
• The company's focus on non-measured channels is yielding growth, as these channels continue to gain momentum. Expansion in these areas is positioned to contribute to revenue growth.
  
• The product innovation and marketing efforts, particularly around brands like Boulder Canyon and On The Border, are showing success in capturing new customers, which could drive future revenue and earnings growth through increased household penetration and repeat purchases.

Utz Brands Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Utz Brands's revenue will grow by 3.1% annually over the next 3 years.
• Analysts assume that profit margins will increase from -1.0% today to 4.0% in 3 years time.
• Analysts expect earnings to reach $62.5 million (and earnings per share of $3.7) by about December 2027, up from $-14.0 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 6.3x on those 2027 earnings, up from -101.3x today. This future PE is lower than the current PE for the US Food industry at 20.5x.
• Analysts expect the number of shares outstanding to decline by 50.69% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 5.92%, as per the Simply Wall St company report.

Utz Brands Future Earnings Per Share Growth

Risks

• The reaffirmed organic growth outlook suggests the company expects significant acceleration, but recent consumption data shows stagnation, indicating potential challenges in achieving projected revenue growth.
  
• Heightened competition, particularly in the tortilla and potato chip segments, could pressure Utz's market share and impact earnings by necessitating increased promotional spending.
  
• The increasing promotional environment may lead to margin compression if the price and volume balance skews toward greater discounting, threatening net margins.
  
• A reliance on distribution gains and expansion into new geographies may face hurdles if these efforts do not translate effectively from volume to value, posing a risk to revenue stability.
  
• The success of new and innovative product offerings, particularly in competitive segments, remains uncertain and could impact future earnings if consumer adoption does not meet expectations.

Valuation

• The analysts have a consensus price target of $20.6 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 $24.0, and the most bearish reporting a price target of just $18.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2027, revenues will be $1.6 billion, earnings will come to $62.5 million, and it would be trading on a PE ratio of 6.3x, assuming you use a discount rate of 5.9%.
• Given the current share price of $17.2, the analyst's price target of $20.6 is 16.5% 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.