The Ratings Game: Rao’s parent Sovos Brands’ valuation doesn’t take its growth potential into account, analysts say
Sovos Brands Inc. stock was trading Monday at about $14.77, above its recent IPO issue price of $12, but Stifel analysts say the company’s valuation doesn’t take its growth potential into account.
“The IPO priced below the range and even as the stock has traded up we find
Sovos’s valuation attractive here in relation to its growth – high-single ongoing sales growth, stronger near-term growth, and a valuation that does not adequately value the growth, in our view,” analysts led by Christopher Growe wrote in a note to clients.
Sovos has strong, fast growing brands that Stifel is expecting to achieve sustained high-single-digit sales growth, “for the foreseeable future.”
The company has a strong innovation pipeline, it continues to gain traction with more households, is enjoying strong growth in market share and will likely benefit from further acquisitions to support its growth agenda, they wrote.
Stifel initiated Sovos at buy with a $17 price target.
Read: Sovos is creating a lineup of small brands designed to take on big food companies
Sovos began trading on Sep. 23, jumping 21% out of the gate. The shares priced at $12 per share, below the expected pricing range of $14 to $16.
The Renaissance IPO ETF
is up 5% for the year to date while the S&P 500 index
has gained 19.3% for the period.
Sovos brands include Rao’s pasta and sauces, Noosa yogurt, Michael Angelo’s Italian frozen meals and Birch Benders, a pancake, baking and waffle brand.
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“Rao’s is the rock star of the portfolio,” wrote JPMorgan analysts in their initiation of the stock’s coverage.
“With last 12 months sales of $370 million Rao’s is the most important part of the story. In pasta sauce, Rao’s has grown from a 4% measured market share four years ago to 14% today—an extraordinary move in a venerable category. With velocities far above the category average but distribution points and household penetration rates still far below, Rao’s pasta sauce still has a meaningful expansion opportunity ahead.”
The brand is now also selling frozen entrées and soup.
JPMorgan also notes that Noosa is “performing very well of late.”
JPMorgan initiated Sovos stock at overweight with a $17 price target.
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“Sovos Brands is an early-stage, fast-growing packages food company specializing in acquiring and building disruptive growth brands,” wrote Credit Suisse analysts led by Robert Moscow.
“We believe the valuation multiple of the stock will move higher as the market gets to know the company better and gains conviction in the high-single digit growth objective that management has laid out.”
Credit Suisse initiated Sovos stock at outperform with a $17 price target.