On Thursday, Raymond (NS:RYMD) James initiated coverage on Premium Brands Holdings Corp . (TSX:PBH:CN) (OTC: PRBZF) with an Outperform rating and set a price target of Cdn$100.00. The firm highlighted that the stock, currently trading at $80, is valued below the expected earnings multiple for 2025, which contrasts with the historical average and the valuation of its peers.
Premium Brands Holdings Corp., which operates within the food distribution and manufacturing supply chain, is trading at nearly 16.5 times the estimated earnings per share (EPS) for 2025. This valuation is significantly lower than the company's historical 5-year and 10-year averages of 21.0 times and 21.6 times, respectively. In comparison, a selected group of relevant U.S.-based peers in the industry trades at a higher multiple, averaging 25.3 times the estimated 2024 EPS and 19.4 times the 2025 EPS.
The company has experienced a slower ramp-up and onboarding of customers, which has led to an increase in leverage beyond its typical range. As of the end of the third quarter of 2024, Premium Brands Holdings Corp.'s senior debt to EBITDA ratio stood at 3.4 times, exceeding the target range of 2.5 to 3.0 times. Additionally, the total debt, which includes debentures to EBITDA ratio, was at 4.4 times, above the target range of 3.5 to 4.0 times.
Raymond James expects the company's leverage to stabilize at the current levels and begin to trend downwards over the course of 2025, particularly in the second half of the year. The firm's analysis suggests that despite the short-term challenges faced by Premium Brands Holdings Corp., the stock is currently priced in a way that reflects these issues, with potential for performance improvement as the company's financials are projected to strengthen.
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