Investing.com -- Shares of HelloFresh (OTC:HLFFF) SE (ETR:HFGG) rose higher Friday after JPMorgan (NYSE:JPM) upgraded the stock from Neutral to Overweight and raised its price target from €7 to €14.
The move comes amid the German meal-kit provider’s efficient cost management and marketing, which led to a significant earnings beat in its pre-announced third-quarter results.
HelloFresh stock climbed more than 4% in European trading.
JPMorgan’s analysis highlighted HelloFresh's strategic shift towards retaining its existing customer base in the meal-kit sector, which is showing positive outcomes.
HelloFresh's ready-to-eat (RTE) segment is growing at a robust rate of 40% year-over-year, the bank notes, helping to balance the continued weakness in meal-kits. The expansion of RTE in Germany, the Netherlands, Scandinavia, and Canada is expected to support further growth into 2025.
“In addition, management reassured on further capex reductions which should boost free cash flow (FCF) going forward,” JPMorgan analysts led by Marcus Diebel noted.
“Overall, we believe the market is now missing the changing financial growth profile for HelloFresh - away from high top-line growth and TAM expansion, to a more stable, but high margin and FCF accretive business,” they added.
JPMorgan's updated adjusted EBITDA estimates for 2025 and 2026 are 21% and 7% ahead of consensus, respectively, indicating attractive equity free cash flow yields.
Although there is caution regarding the meal-kit operations in the short term, with expected negative revenue growth in 2025 and 2026, the growing RTE operations are projected to more than compensate for this downturn.
Analysts estimate a growing EBITDA in 2025, supported by the RTE mix, which is estimated to account for 40% of profit share by 2027.
JPMorgan's valuation of the meal-kits segment has also been revised, increasing from 1x EV/EBITDA to 3x, reflecting a more positive outlook on the business. This adjustment, combined with higher EBITDA forecasts, underpins the price target increase to €14, suggesting a potential upside of 38%.