Vital Farms: A Healthier Future

Core Viewpoint - Vital Farms is positioned as a long-term growth opportunity despite recent share price pressures, with improved operating performance and potential for margin expansion in 2023 [2][4]. Company Overview - Founded in 2007, Vital Farms focuses on ethically produced food, particularly in the pasture-raised eggs market, collaborating with around 300 family farms and selling in over 20,000 stores [3]. - The company went public in July 2020, targeting a $5 billion US shell eggs market, with growth driven by inflation and volume increases, expanding its addressable market to approximately $10 billion [3]. - Sales grew from $45 million in 2014 to $141 million in 2019, but operating margins remained low at 2% [3]. Financial Performance - After a strong IPO, Vital Farms experienced a decline in sales and margins in the second half of 2020, with shares dropping to $10 in 2022 [3]. - In 2021, sales increased by 21% to $261 million, but EBITDA halved to $8 million, reflecting ongoing margin pressures [3]. - 2022 revenues rose to $362 million, with EBITDA improving to $16 million, indicating some recovery but still lacking realistic earnings [3]. - By spring 2023, sales were expected to reach a minimum of $450 million, with EBITDA guidance of at least $30 million, suggesting a significant improvement in profitability [3]. Recent Developments - In May 2023, Vital Farms reported a 55% increase in first-quarter sales to $119 million, with adjusted EBITDA nearing $14 million, driven by pricing and a 26% increase in volumes [4]. - The second quarter saw a 28% increase in sales to $106 million, with operating earnings of $8 million and a revised full-year sales guidance of at least $465 million [4]. - By November 2023, third-quarter sales were up 20% to $110 million, with a net earnings report of $0.10 per share, leading to an increased full-year EBITDA guidance of over $40 million [4]. Long-Term Outlook - With 43 million shares trading at $15, the equity valuation is approximately $650 million, with an enterprise valuation of $550 million, reflecting a sales multiple of just over 1 times [5]. - The company aims to double revenues to over $1 billion by 2027, targeting EBITDA margins of 12-14%, which could translate to $120-$140 million in EBITDA [5]. - Potential net profits could reach $75-$90 million, suggesting earnings power of $1.75-$2.10 per share by 2027, with a market multiple potentially driving shares up to $40 or higher [5].