MMMB: Zacks initiates coverage of MamaMancini’s with Buy rating
OTC:MMMB Zacks has initiated coverage of MamaMancini’s Holdings (MMMB) with an Outperform rating and a price target of $2.96. MamaMancini’s Holdings is a growth company in the specialty food industry. Management is aggressively pursuing strategies to build the MamaMancini’s brand and drive sales growth through 1) the addition of new retail locations, 2) increasing the number of shelf placements at each location and 3) new product introductions. The company has significant potential through expanding its distribution footprint, increasing brand awareness and making more products available in terms of both variety (Beef, Turkey Chicken and Pork Meatballs and Sauce, Antibiotic-Free Meatballs, Gluten-Free Beef Meatballs, Mama’s Mac-n-Cheese Stuffed Meatballs and Pasta Dinners) and format (frozen, fresh, hot deli bar, sandwich kiosks, etc.). MamaMancini’s is a specialty packaged food company focused on manufacturing, marketing and distribution of specialty (Italian) pre-prepared, frozen and refrigerated all natural food products under the MamaMancini’s brand name. The company’s products are sold primarily at supermarkets, big-box stores and mass market retailers, including traditional large and regional grocery chains, Whole Foods, Costco and Wal-Mart. The company offers a portfolio of all-natural Italian food products that overtime has expanded through new product introductions, portion resizing and packaging enhancement. MamaMancini’s products utilize domestic inspected meats, Italian tomatoes, genuine Romano cheese, real eggs and other all-natural ingredients that not only provide an authentic Italian taste profile, but also qualify as “all natural” as per the definition of the U.S. Department of Agriculture. MamaMancini’s products are positioned as a healthy, convenient and authentic Italian meal option that does not contain any artificial ingredients and is available at a slight premium price point, competitively priced versus other premium brands and slightly higher than commodity prepared foods. Sequentially, quarterly sales have been growing consistently in the range of 6% and 28% on a 4-quarter rolling basis as the company broadens its reach in the supermarket, mass market, big-box and club store segments of the retail distribution channel. For the 2013 calendar year, net sales increased 90.7% over 2012. At the end of 2013, the company’s reporting period from a calendar year to a fiscal year ending January 31st, making the calculation of Year-Over-Year (YOY) sales growth in 2014 somewhat challenging. Nevertheless, it appears that net sales have been growing at around a 50% YOY pace over the last 12 months. Management is focused on both expanding the breadth of the distribution network of the company’s products towards a strong nationwide footprint and intensifying the depth of the product portfolio to garner additional product placements at each location. Retail distribution has grown from 4,000 locations with 16,000 shelf placements at the end of calendar 2013 to 11,700 stores and 37,000 shelf placements as of October 31, 2014. One goal of management’s growth strategy is to increase the number of retail locations that carry the company’s products from the current 11,700 stores by further expanding into the existing marketplace of 32,000 grocery stores and mass merchants. Simultaneously, the company plans on increasing total shelf placements from the current 37,000 to 300,000, along with increasing the penetration per store (measured by the number of SKUs per location) from the current 3.36 to 5 short-term and 10 longer-term. Management is committed to innovative product launches in order to further drive sales growth. MamaMancini’s has entered a prolific period of new product introductions. During the last 12 months, the company has launched 10 new products in the following categories: Antibiotic-Free Meatballs, Gluten-Free Beef Meatballs, Mama’s Mac-n-Cheese Stuffed Meatballs and Pasta Dinners. Currently, the company is producing 17 versions of MamaMancini’s products. The branding strategy includes marketing programs designed to build consumer awareness and customer trial through targeted radio advertising (Sirius XM), social media, in-store merchandising, promotional discounts, couponing, consumer product tastings, demonstrations and special merchandising events. In addition, the founder of the MamaMancini's brand, Daniel Mancini, blogs, tweets and demonstrates recipes on roadshows.All of the company’s products are derived from the original, traditional family recipes of Anna Mancini, the Brooklyn grandmother of Daniel Mancini. He was taught how to make her meatballs and authentic Italian sauce at age 15. Today, all new products are being developed under a License Agreement with him. Generally, the appropriate valuation methodology for food companies is based on EV/EBITDA (Enterprise Value/Earnings Before Interest, Depreciation and Amortization) reflecting the sector’s characteristics of profitability and cash flow generation. P/E (Price/Earnings) can also be utilized for mature, slow-growing food companies with a moderate amount of debt. However, if a company is experiencing negative profitability, either due to adverse fundamental circumstances or being in the early phases of the company’s life cycle, the applicable valuation metric becomes Price-to-Sales (P/S). In the case of MamaMancini’s, the appropriate valuation methodology is based on P/S due the character of the company’s enterprise, namely a small-capitalization company, currently with negative profitability, but with an expected rapidly growing sales profile that should ultimately result in profitable operations as the company’s products achieve increased distribution and brand awareness. Price-to-Sales valuation incorporates the company’s ability to generate revenues with the expectation that the growing revenue stream ultimately will manifest itself into positive EBITDA and also positive earnings when the break-even point is surpassed. In the valuation process, industry comparables should be carefully chosen such that the character and growth rate of revenues are similar. It is important to incorporate a mechanism which takes into account that MamaMancini’s is experiencing solid double-digit revenue growth on a quarterly YOY basis, currently 73.5% for the most recently reported quarter. Comparable companies should share this same fundamental attribute of revenue growth. It is typical for the P/S multiples of young firms that appear to have vast potential to be well above those of moderately growing companies, sometimes expanding well above 7 times trailing twelve-month (TTM) sales. Since going public in March 2013, the stock has traded between 3.0 and 14.1 times TTM sales, but predominately between 4.1 to 9.9 times, with an average of 6.9 times. Comparable fast growing food companies are not common. Few small and mid-cap companies generate quarterly revenue growth above 10% on a YOY basis, let alone 73% like MamaMancini’s. Similar consumer staple companies reporting quarterly growth in excess of 7.5% YOY trade at significant premiums due to their growth potential, specifically between 1.4 and 7.6 times sales with a mean P/S valuation of 3.7 times. MamaMancini’s is in the emerging growth phase of its corporate history and is still in the early stage of establishing its grocery store distribution footprint. The full potential and financial impact of management’s distribution strategy has yet to be observed in the company’s financial reports. Since MamaMancini’s has the potential and is expected to generate meaningful increased revenues over the upcoming quarters, our price target is based on a P/S ratio valuation using estimated forward revenues. Given the company’s exposure to the attractive specialty food industry, extremely strong revenue growth exhibited by reported financial results and rapidly growing grocery-store presence, we are projecting TTM revenues of $18.4 million through January 2016. Based on evaluating current price-to-sales multiples of comparable growth companies within the industry and an expectation that the company will be valued in the top quartile (or at 4.5 times projected TTM sales), our target for MamaMancini’s is $2.96. READ THE LATEST FULL RESEARCH REPORT HERE SUBSCRIBE TO ZACKS SMALL CAP RESEARCH to receive our articles and reports emailed directly to you each morning. Please visit our website for additional information on Zacks SCR and to view our disclaimer.
