William Blair & Company initiated research coverage of Annie’s, Inc. (BNNY $37.02), a rapidly growing natural and organic food company, with an Outperform rating and Aggressive Growth company profile.
Analyst Jon Andersen estimated the company would generate adjusted earnings per share of $0.68 in calendar year 2012 and $0.90 in calendar year 2013.
“We believe that Annie’s has a compelling long-term growth opportunity,” Andersen said, “based on its attractive position in the large and growing market for natural and organic food, strong brand and operating capabilities, cost- and capital-efficient business model, and seasoned and successful management team. The company’s target market—U.S. natural and organic food—is forecast to reach $52 billion in 2013, up from $41 billion in 2010. This represents compound annual growth of 8%, far outpacing the forecast low-single-digit growth rate of conventional packaged food. Annie’s possesses the No. 1 market share position in the natural retailer channel in four categories and, unlike most food brands, has proven crossover appeal, achieving success in both the natural retailer and mainstream grocery channels. Top-line growth drivers include improvements in distribution, product placement, household penetration, and consumption, as well as extension of the brand and entry in new categories.”
Andersen added, “Our long-term base-case scenario calls for midteens organic sales growth, double-digit operating income growth, and EPS growth of 20% to 25%. However, these estimates could prove conservative, with upside potential driven not only by category and market share growth in existing product lines, but, perhaps more important, contributions from new platforms, such as frozen food. We consider the recent introduction of Annie’s frozen pizza a first step in a multiproduct, multiyear expansion in frozen food, a process that could more than triple the company’s addressable market. We believe the stock’s premium valuation is warranted given Annie’s above-average growth prospects, strong capital returns, and likely earnings upside.”
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Outperform (Buy): 60%
Market Perform (Hold): 32%
Underperform (Sell): 1%
Inv. Banking Relationships*
Outperform (Buy): 8%
Market Perform (Hold): 1%
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