Lake Street Capital Markets adjusted its stance on MGP Ingredients (NASDAQ:MGPI), downgrading the stock from Buy to Hold, while setting a price target of $75.00. The revision follows MGP Ingredients' preliminary earnings release, which revealed widespread top-line weakness. The company's performance is anticipated to remain under pressure at least through the fourth quarter, a stark contrast to earlier expectations of significant sequential growth throughout the year.
The analyst from Lake Street Capital Markets noted the severe impact of the earnings announcement on the company's stock value, stating, "Shares are deservedly getting smoked, down 20% aftermarket." This decline in share price reflects investor reaction to the unexpected financial results detailed by MGP Ingredients.
MGP Ingredients' disappointing preliminary earnings report indicated a broad shortfall in revenue, prompting the analyst to adjust the stock's rating. The company had previously been projected to exhibit strong sequential growth during the year, but the latest financial data suggests that such growth will not materialize as anticipated.
The downgrade to Hold reflects a more cautious outlook on MGP Ingredients' stock, given the comprehensive nature of the reported revenue weakness. The new price target of $75.00 represents Lake Street Capital Markets' revised valuation of the stock in light of the earnings release and the projected ongoing challenges facing the company in the near term.
Investors responded to the news with a significant sell-off in after-hours trading, resulting in a 20% drop in MGP Ingredients' share price. This market reaction underscores the weight of the earnings shortfall and the revised expectations for the company's financial performance moving forward.
MGP Ingredients, a provider of distilled spirits and food ingredient solutions, reported disappointing preliminary third-quarter results, prompting a downward revision of its full-year outlook. The company anticipates a 24% YoY decline in Q3 sales to $161.5 million, with adjusted earnings per share dropping 5% to $1.29. This falls short of analysts' expectations of an EPS of $1.44 on revenue of $186.33 million.
Factors such as soft alcohol spirits category trends and elevated industry-wide whiskey inventories are pressuring MGP's brown goods business, particularly impacting smaller craft customers. Consequently, Distilling Solutions segment sales are projected to drop 36%, including a 22% decline in brown goods.
For the full year of 2024, MGP now expects sales of $695-$705 million, a significant decrease from its previous guidance of $742-$756 million. The company has also lowered its adjusted EBITDA forecast to $196-$200 million from the earlier $218-$222 million.
InvestingPro Insights
Recent data from InvestingPro provides additional context to MGP Ingredients' (NASDAQ:MGPI) current situation. Despite the downgrade and disappointing preliminary earnings, the company maintains some financial strengths. According to InvestingPro Tips, MGPI operates with a moderate level of debt and its liquid assets exceed short-term obligations, which could provide some financial stability during this challenging period.
The company's P/E Ratio (Adjusted) stands at 14.28, lower than its unadjusted P/E of 18.74, suggesting that the stock might be more reasonably valued than it appears at first glance. However, the revenue growth data aligns with the concerns raised in the earnings report, showing a decline of 1.78% over the last twelve months and a more significant 8.71% drop in the most recent quarter.
On a positive note, MGPI's EBITDA grew by 14.93% over the last twelve months, indicating some operational efficiency despite top-line pressures. The company's dividend yield of 0.59%, while modest, may offer some consolation to long-term investors.
InvestingPro Tips also highlight that analysts predict the company will remain profitable this year, which could provide some reassurance amidst the current headwinds. For investors seeking a more comprehensive analysis, InvestingPro offers 7 additional tips for MGPI, providing a deeper understanding of the company's financial health and prospects.
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