William Blair initiated research coverage of Karat Packaging, Inc. (KRT $17.37), a fast-growing manufacturer and distributor of environmentally friendly, single-use disposable products, primarily used in restaurants and foodservice settings.
Analyst Ryan Merkel estimated the company would generate adjusted earnings per share of $1.13 in 2021 and $1.41 in 2022. Long term, management targets midteens sales growth, 31% gross margins, and midteens or better EPS growth.
“Karat is a one-stop shop for all premium and environmentally friendly disposable foodservice packaging,” Merkel said. “It is known for innovative, affordable, and customizable products that are on-trend. We believe Karat is disrupting the foodservice packaging industry with globally sourced product, direct selling, a broad product offering, a national distribution footprint, and superior customer service. In our view, Karat is well positioned to expand share in the growing foodservice packaging market, which is benefiting from secular trends, such as online food delivery and migration to sustainable products. The company’s strong growth has been driven by selling more to existing customers, adding new customers, and adding new products. In 2020 Karat was able to add 25,000 new customers as takeout containers were in short supply. As new customers see rising dine-in demand, we believe Karat will grow its wallet share.”
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Current Ratings Distribution (as of 5/18/21)
Outperform (Buy): 75%
Market Perform (Hold): 24%
Underperform (Sell): 1%
Inv. Banking Relationships*
Outperform (Buy): 28%
Market Perform (Hold): 11%
Underperform (Sell): 0%
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