Annie's Faces Short-Term Challenges. Fad-Status Unclear.

By: SumZero Staff | Published: October 23, 2012 | Read Comments (2)

Full annies bunny
Annie's, Inc.

Given the trend toward healthier foods, Annie's stock has clearly caught this wave following the success of Hain's, Whole Foods, Chipotle, etc. The stock now trades at a level where I believe it is an attractive short.

Why Now?
Significant insider selling - the IPO sold $95mm worth of stock; however, the Company only received $11.5 million of these proceeds. Selling shareholders (mostly institutional in nature) received the other $83mm. Of the 9+mm shares sold in the last year in public offerings, only ~10% was actual capital raising for the company while 90% of the shares sold were from insiders.

The lock-up expires October 30, 2012 and I believe there is potential for more supply of stock to hit the markets.

Valuation
On average, consumer packaged goods companies trade at 1-1.5x sales. BNNY's current market valuation of $700mm would imply they need $450mm+ of sales to justify today's price. 2011 sales were only $118mm.

So what are the potential growth drivers to get sales from $118mm to $450+mm? BNNY just launched their new frozen pizza product. Other than pizza, snacks is the only other growth driver as I believe the growth potential in remaining "meals" products is limited having been around for many years. If BNNY's pizza line can do $100mm (in my opinion, this is a generous estimate), this leave snacks to fill the remaining $200mm revenue gap to justify today's price. Even if frozen pizza and snacks surprised to the upside in its sales potential, I believe the risk in the short is limited.

Assuming more reasonable sales expectations of $250mm for BNNY's products, I derive a price target of $21.

Comments

  • David Root October 26, 2012 edit |

    Why is my comment no longer showing?

  • Aaron Cyrus Anis October 29, 2012 edit |

    They removed it probabaly.

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