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Bear of the Day: Freshpet (FRPT)

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·3 min read
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Freshpet Inc. (FRPT) is a pet food company that manufactures and markets natural fresh foods, refrigerated meals, and treats for dogs and cats in the United States and Canada. Freshpet provides meat-based recipes, such as chicken, beef, lamb and salmon; fruits and vegetables like carrots, peas and leafy green vegetables; and high-fiber grains, such as brown rice, oats and barley. It sells its products under the Freshpet, Dognation, and Dog Joy brand names, and is headquartered in Secaucus, New Jersey.

Q4 Earnings Recap

Shares of FRPT fell after the company reported fourth-quarter and full-year 2020 results back in February.

Net sales grew 28.5% year-over-year for Q4, reflecting a slight slowdown in growth compared to the prior year period. But net sales for 2020 matched Street expectations, up 30% year-over-year.

Additionally, FRPT announced intentions to raise $300 million by selling common stock, which added pressure to the stock that day.

Freshpet more than doubled from last March’s lows, so this earnings-related pullback, as well as the last few week’s volatility, has probably been healthy for the stock.

Bottom Line

FRPT is now a Zacks Rank #5 (Strong Sell).

Seven analysts have cut their full year earnings outlook over the past 60 days, and the consensus estimate has fallen 18 cents to $0.39 per share; earnings are expected to grow considerably year-over-year, but it looks like bottom-line growth will slow down next fiscal year.

Shares are up about 38% in the past six-month period compared to the S&P 500’s gain of 20.8%.

Even though investors and analysts were disappointed by Freshpet’s Q4 report, the company remains confident about its outlook. Management now believes Freshpet products will be in 11 million homes by 2025, up from 8 million.

FRPT may continue to experience severe ups and downs as bond yields rise, so investors who are interested in adding a pet food stock to their portfolio could also consider consumer staples giant General Mills (GIS); the company purchased the popular pet food company Blue Buffalo in 2018. GIS is a #3 (Hold) on the Zacks Rank right now.

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