Dive Brief:
- Credit Suisse started its coverage of AdvancePierre, which launched its IPO in July, with an "outperform" rating and $29 target price. The company's IPO launched at $21 per share.
- Credit Suisse believes AdvancePierre is "a competitively advantaged company in an attractive category with several avenues for expansion," analyst Robert Moskow wrote in a report this week.
- AdvancePierre has seen its core volumes increase at a CAGR of 3.6% for the past two years, but Credit Suisse expects core volume growth of 5.5% this year due to "product innovation for the retail and convenience channels and margin expansion through productivity initiatives," according to Moskow.
Dive Insight:
AdvancePierre's 2,600 SKUs, which include the company's own brands and private label, primarily fit into three categories: RTE sandwiches, such as breakfast sandwiches or peanut butter and jelly; sandwich components, such as fully-cooked hamburger and chicken patties; and an assortment of entrees and snacks, such as chicken tenders and cinnamon dough bites.
AdvancePierre has one common thread through many of its products: convenience. Whether they are RTE or ready-to-cook, the company's brands and innovations center around foods that are easy and fast to prepare from freezer or refrigerator to plate. Convenience increasingly drives consumers' purchase decisions, so if AdvancePierre can offer more convenient versions of the same product with the right price point and flavors, it could pose a threat to other major manufacturers.
However, AdvancePierre doesn't have the same kind of brand penetration and recognition that companies like General Mills or Kraft Heinz do. The company will have to rely on accessibility, innovation and potentially strategic acquisitions in key product categories to be a more serious contender in the center store aisles, especially if other brands dominate the premium shelf space.
AdvancePierre may have also hit the sweet spot in terms of R&D with "more robust" capabilities than smaller peers, Moskow wrote, likely due to its relative size and capital availability. But its pace of innovation, having introduced 543 new SKUs from 2012 to 2015, also shows AdvancePierre may be quicker to adapt to trends than other major manufacturers, for which R&D can move more slowly. Those new products contributed to 12.7% of the company's 2015 sales, Moskow wrote.
AdvancePierre could also be a new leader in further industry consolidation as other similar companies haven't been as acquisitive, Moskow said. Management has reportedly identified more than 65 potential targets, and the company has demonstrated its ability to quickly integrate acquisitions and realize synergies. Experts have said that though deal counts have slowed, food and beverage M&A is not in a downturn, so AdvancePierre may be a company that picks up the slack.