Analysts at UBS believe Chef’s Warehouse could fetch US$37 per share and have awarded it a ‘Buy’ rating in their initial coverage of the stock.
Shares of the restaurant supplier traded at US$23.64 at Monday’s close.
The analysts wrote that the company’s heavy focus on service, its wide selection of hard-to-find specialty and centre-of-the-plate items, and its broad footprint have helped it become a market leader for high-end dining establishments.
They pointed out that the company has also been finding ways to boost its wallet share with existing customers by scaling up new categories such as produce.
“Its mid-teens top line compound annual growth rate from 2019 to 2022 compares favorably to larger players with more scale,” the analysts wrote in a note to clients.
However, near-term deflationary and economic concerns are weighing on the stock. The analysts expect these to moderate in the next few quarters.
“We think CHEF has room to run,” they wrote.
They believe the company has room for more upside if it is able to generate higher-than-expected synergies from its latest batch of acquisitions while boosting new customer and wallet share growth.
“In this scenario, we see the potential for 11% sales growth and a 6.2% earnings before interest, taxes, depreciation and amortization (EBITDA) margin two years out” they forecast.
However, they noted they could become more bearish on Chef’s Warehouse should it run into challenges integrating its recent spurt of acquisitions, as well as if food deflation intensifies, a slowing economy reduces demand for its core customers, and more of its customers struggle with payment terms.
“In this scenario, we could see 4% sales growth and a 5.75 EBITDA margin two years out,” they wrote.
Contact the author at emily.jarvie@proactiveinvestors.com
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