Premium Brands has price target cut at Desjardins

Following the company’s fourth quarter results, Desjardins analyst Chris Li has lowered his price target on Premium Brands Holdings (Premium Brands Holdings Stock Quote, Chart, News, Analysts, Financials TSX:PBH).

On March 21, PBH reported its Q4 and fiscal 2024 results. In the fourth quarter, the company posted Adjusted EBITDA of $148.7-million on revenue of $1.64-billion, up 5.4%, year-over-year.

“2024 finished on a strong note driven by our Protein and Bakery Groups’ US sales initiatives, which generated approximately $50 million in sales volume growth in the quarter. We also saw an improved consumer environment in the Canadian market with our Premium Food Distribution segment’s Canadian businesses generating 2.4% in organic volume growth for the quarter,” said CEO George Paleologou.

The analyst summarized the quarter.

“4Q results reflect strong growth from US Specialty Foods (protein, bakery), partially offset by temporary challenges at a major US foodservice customer (sales volume down 9.9% yoy vs -11.5% yoy in 3Q) and lower lobster sales at PFD,” Li wrote. “Total debt/EBITDA remains above management’s target (4.5x vs 3–4x). Management expects solid double-digit revenue and EBITDA growth in 2025, with the key caveat being the health of the consumer due to tariffs. The midpoint of its C$7.2–7.4b revenue guidance implies ~13% yoy growth, or ~8% excluding acquisitions (we are more conservative at ~5%). Growth will be mainly driven by US Specialty Foods (protein, sandwich, bakery), continued stabilization of the Canadian consumer and, to a lesser extent, FX translation and selling price increases to offset higher input costs. Growth will be weighted toward 2H as new programs are launched and sales volumes at a major foodservice customer recover. Management expects 2025 adjusted EBITDA of C$680–700m, with the midpoint implying ~16% yoy growth and ~9.5% margin (30bps yoy). We are more conservative at C$670m. Growth will be mainly driven by sales volume gains and manufacturing efficiencies, partially offset by wage inflation and new plant overhead costs.”

In a research update to clients March 23, Li maintained his “Buy” rating but cut his price target on PBH from $95.00 to $93.00, implying a return of 22.5% at the time of publication.

The analyst thinks the company will post Adjusted EBITDA of $670.0-million on revenue of $7.1-billion in fiscal 2025. He expects Adjusted EBITDA of $727.0-million on revenue of $7.5-billion in fiscal 2026.

“We have trimmed our 12-month target to C$93 from C$95 based on ~10x 2026 EBITDA (in line with current valuation of 9.9x based on 2025 EBITDA) and supported by lowdouble-digit percentage EBITDA growth,” Li concluded. “Taking a longer-term view on valuation, our 2027 revenue/EBITDA forecast of ~C$8.0b/C$800m are well below management’s C $10b/C$1b. Based on our more conservative 2027 forecast, we derive a two-year valuation of ~C$103/share by the end of 2026 (17% CAGR) based on 10x EBITDA. While we expect trading to remain volatile until sales visibility improves, we believe PBH remains well-positioned for solid long-term growth”