Goodfood Market Corp (TSX:FOOD) has earned a repeat ‘Hold’ rating with a reduced price target of C$0.50 down from C$0.60 from Cannacord Genuity analysts following the release of the meal-kit provider’s 4Q 2022 results.
In a note to clients, analysts wrote that Goodfood had posted earnings in line with the expectations set out alongside the company’s announcement in November that it would be exiting the on-demand grocery (ODG) business, with revenue of $50 million and adjusted earnings before interest, taxes, depreciation, and amortization coming in at a loss of $2 million.
Its gross margins expanded 5.4% year-over-year to 28.3%, or 7.8% to 30.7% when excluding the impact of discontinuing ODG, the analysts noted.
READ: Goodfood Market's exit from on-demand delivery services disappointing but necessary, analysts say
“All told, we’re encouraged by the margin expansion brought on by the exit from ODG, a business we were initially skeptical about, given how notoriously difficult it is for operators to achieve consistent, long-term profitability in the space,” the analysts wrote.
“Though the balance sheet situation is no doubt concerning, the company is pulling the necessary levers to manage its cash position by cutting spend where possible.”
Near term growth profile
The analysts wrote they were "curious" to see what the near-term growth profile looks like in the business with a focus on driving revenues from its most loyal customers and how much runway there was for this type of growth moving forward.
Their updated price target of C$0.50 represents 0.5x of their 2023 financial year sales estimate of $200 million, below GoodFood's meal-kit provider peer group at 0.7x FY+1 sales.
The decrease in the target price was attributed to the increase in Goodfood’s net debt quarter-over-quarter.
“We anticipate investors will be unlikely to reward the stock with a higher multiple until the company can demonstrate (1) consistent, durable growth in its meal-kit business and (2) it has ample capacity on its balance sheet to fund operations,” the analysts concluded.
Goodfood’s Toronto-listed shares had soared 27.3% on Monday morning, trading at C$0.63 per share.
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