SunOpta Inc. (SOY-T) shares are trading at record highs on the Toronto Stock Exchange amid growing demand for its plant-based food products and as more people eat at home during the pandemic.
Shares of SunOpta, which makes plant- and fruit-based foods and beverages such as oat milk and snack bars, rose 8 per cent to a record $16.37 on the TSX on Thursday alongside a record day for the index. (The stock’s previous record was $16.22 in Nov. 2014, according to TSX.com). SunOpta stock is up more than 25 per cent over the past month, and about 375 per cent over the past year on the TSX. The shares rose by as much as 8 per cent to US$12.88 on the Nasdaq Thursday, its highest level in about five years on that index.
On Monday, Mississauga-based SunOpta, announced it had closed the previously announced sale of its global ingredients segment and related assets to Amsterdam-based global commodity trading company, Amsterdam Commodities N.V., for €330 million (about $500-million Canadian).
In a release, chief executive Joe Ennen called it a “strategically transformational divestiture” that will help the company focus on its future direction “as a high-growth, plant-based company.” He also said the deal “significantly de-levers and strengthens” the company’s balance sheet, helping it expand the plant-based food and beverage segment. For instance, the company is expanding its Minnesota-based oat-processing facility to quadruple production by the end of 2022.
In a Jan. 4 note to clients, Craig-Hallum Capital Group analyst Alex Fuhrman said SunOpta “is poised for a breakout year in 2021,” amid rising demand for plant-based foods and as investors increasingly seek out companies and products that can be part of sustainable supply chains.
“The company is a leading provider of plant- based foods and beverages and you have almost certainly seen their products at Starbucks and grocery stores,” wrote Mr. Fuhrman, who has a “buy” and US$15 price target on the stock. “We believe the company’s focus on high value plant-based foods and beverages should command a premium valuation with opportunities for upside to estimates as the economy recovers from COVID.”
Mr. Fuhrman said a return to growth for Starbucks on the other side of the pandemic “could lead to significant upside to our estimates for SunOpta’s plant-based food and beverage segment.” He said his conservative model is 9-per-cent growth in 2021 after an estimated 13-per-cent growth in 2020.
He also says plant-based products, in general, are expected to grow, benefitting SunOpta. “At just US$4.5-billion in sales today, plant-based products are less than 1 per cent of the US$695-billion grocery market, but it is easy to envision it representing a double-digit share of grocery sales over time,” the analyst said.
He said the company also appears to have stabilized its management team and direction:
“After years of management turnover and lacklustre results, a turnaround under new management is starting to bear fruit,” he wrote, noting that when Mr. Ennen took over as CEO in April 2019, it was the company’s fifth CEO transition in less than four years. “It appears SunOpta has finally found its go-forward CEO.”
William Blair analyst Jon Anderson has an “outperform” (similar to buy) recommendation on the stock and believes the company’s enterprise value “seems reasonable” at 20 times 2021 EBITDA (earnings before interest, taxes, depreciation and amortization).
“We believe SunOpta should be able to create additional shareholder value given its capabilities in plant-based foods and beverages and financial profile supporting internal investment and M&A,” he wrote in a Jan. 4 report.
He noted that the company has replaced its previous credit facility with a new one with “greater flexibility, longer maturity and lower interest rates.”
Moez Mahrez, an analyst at 5i Research Inc., says the company has broken its trend of “relatively flat revenue and slow revenue growth,” but says the revenue growth is only in the mid-single digits.
“The company is approaching profitability and margins have begun to expand,” he said in an email. “The valuation was relatively cheap before the run-up and investors may be excited by the plant-based theme, the first sign of revenue growth as well as the sale of their Globa Ingredients business, which should significantly strengthen their balance sheet.”
He notes the company will use it to pay off $224-million of its total debt of $359-million.
“If the company can continue to grow revenues consistently, there still seems to be further upside for shares based on current valuation relative to sales,” he says but adds the company “does not have the best track record of meeting estimates and showing stable growth.
“If the company fails to execute as expected some investors may lose trust in the company’s ability to grow and this could result in volatility in the stock price.”
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