Mama’s Creations stock target lifted, buy rating retained on growth prospects
On Wednesday, an analyst at Craig-Hallum adjusted the stock price target for Mama’s Creations (NASDAQ:MAMA), a manufacturer and distributor of Fresh Prepared Foods (FPF), from $9.00 to $10.00 while maintaining a Buy rating on the stock.
The company, which has been experiencing growth approximately double that of the broader Grocery industry, is benefiting from consumers seeking cost-effective alternatives to dining out and time-saving options compared to cooking at home.
Mama’s Creations has been under the leadership of CEO Adam Michaels since September 2022, during which time the management team has been strengthened, operational controls tightened, and previous acquisitions have been integrated. These strategic moves have led to substantial organic growth, which the analyst believes is not fully reflected in current market estimates and the company’s valuation.
The second quarter results for Mama’s Creations underscored the potential for long-term growth, marked by their initial contract with Walmart (NYSE:) and a national purchase order from Costco (NASDAQ:). The impact of these deals is expected to be seen in the company’s revenue starting in the fourth quarter.
Although construction costs had a temporary negative effect on Q2 gross margins by approximately 500 basis points, this is anticipated to improve in the third quarter and resolve by the fourth quarter. Excluding these costs, the product gross margins exceeded expectations, indicating ongoing efficiency improvements.
The analyst projects that as capital expenditure projects are completed, the company will achieve gross margins exceeding 30%, which will be reinvested into trade promotion to boost sales velocity and revenue growth.
With the average number of items per store standing at around 7.6 in the second quarter and the potential to reach over 20, along with an estimated organic revenue capacity of $300-400 million and significant merger and acquisition opportunities on the horizon, the analyst expects the stock to continue its upward trajectory in the forthcoming quarters and years. The new price target of $10.00 is based on a 20.0x EV/EBITDA multiple on the fiscal year 2026 (ending January 2026) EBITDA estimate of $18.8 million.
In other recent news, Mama’s Creations reported a robust 29% revenue growth in the first quarter, exceeding expectations. This growth was attributed to strategic initiatives, including operational improvements and market expansion. Lake Street Capital Markets maintained a positive outlook on Mama’s Creations, reiterating its Buy rating and a price target of $10.00.
The company has also secured a new customer, with its products now available across 2,000 Walmart stores and in the majority of Costco locations nationwide.
Mama’s Creations appointed Moore (Skip) Tappan as its new Chief Operating Officer, leveraging his extensive experience in supply chain and operations from major consumer goods and food companies. In addition, shareholders approved board and auditor proposals at their Annual Meeting, electing eight nominees to serve as directors.
Analyst firms Craig-Hallum, Lake Street Capital Markets, and Roth/MKM have all upgraded their price targets for Mama’s Creations shares, maintaining a Buy rating, following the company’s impressive performance. These are the recent developments that have marked the company’s progress.
InvestingPro Insights
As Mama’s Creations (NASDAQ:MAMA) positions itself in the Fresh Prepared Foods (FPF) market, current financial metrics provide a deeper understanding of its market stance. With a market capitalization of $294.75 million, the company is trading at a high earnings multiple, with a P/E ratio of 62.31, indicating investors’ high expectations for future earnings growth. This optimism may be partly due to the company’s revenue growth, which was 16.43% over the last twelve months as of Q1 2023, outpacing the industry average.
InvestingPro Tips suggest that Mama’s Creations holds more cash than debt, providing financial flexibility, and analysts predict the company will be profitable this year, aligning with the positive outlook shared by Craig-Hallum’s analyst. Moreover, the company’s liquid assets exceed short-term obligations, highlighting a strong liquidity position. For investors seeking comprehensive analysis, there are over 10 additional InvestingPro Tips available, offering a more detailed perspective on the company’s financial health and future prospects.
It is noteworthy that the company’s high Price/Book multiple of 14.49 reflects a premium valuation compared to its tangible assets. This premium may be justified by the company’s strategic partnerships, operational improvements, and market opportunities as highlighted in the article. With an InvestingPro Fair Value estimate of $5.78, investors should consider the company’s growth prospects and current market dynamics when assessing its valuation.
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