HelloFresh Shares Surge After Upgrade
Shares of HelloFresh (ETR:HFGG) (OTC:HLFFF) rose over 13% on Thursday after Jefferies upgraded the stock from "hold" to "buy."
Reasons for Upgrade
Analysts from Jefferies highlighted HelloFresh’s emerging strategies and its undervalued position as primary reasons for the upgrade. They noted the company’s new emphasis on generating free cash flow and stabilizing meal kit revenues, indicating a recovery after two difficult years marked by profit warnings.
HelloFresh has been dealing with structural issues, not secular ones, due to challenges arising from misalignment of customer acquisition strategies with post-pandemic consumer behavior.
Strong Fundamentals and Market Position
Despite these hurdles, analysts believe HelloFresh's robust fundamentals as a leader in direct-to-consumer food services, combined with new marketing initiatives and operational improvements, place it well for future growth. Jefferies pointed out that HelloFresh trades at less than five times its projected 2025 EBITDA, significantly below its estimated fair value of €16.50 per share, indicating a 40% upside potential from the prior-day trading price of €11.81.
Ready-to-Eat Market Expansion
The research also noted HelloFresh’s expansion into the ready-to-eat (RTE) segment, a faster-growing area. Since acquiring Factor in 2020, revenue from this segment has increased sevenfold. Analysts anticipate that margins in the RTE segment will align with those of meal kits in the medium term, further enhancing profitability.
Future Growth and Investment Strategy
Jefferies emphasized the company’s transition to a mature business model focused on shareholder returns like buybacks and potential dividends, a strategy influenced by the presence of an activist investor. Going forward, HelloFresh’s internal initiatives aimed at improving marketing efficiency, customer retention, and operational optimization are expected to drive 16% annual EBITDA growth through 2028.
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