NEW BEST IDEA: SHORT BNNY

We are adding BNNY to the Hedgeye Best Ideas list as a SHORT.

 

BNNY’s core business is the marketing and distribution of natural and organic food products under the Annie’s brand name.  BNNY has the number one natural and organic market position in four product lines: macaroni and cheese, snack crackers, fruit snacks and graham crackers.  The natural and organic segment of the food industry is the fastest and most dynamic part of the industry – and BNNY is a key player.

 

Generally, the street is rather cautious on the name, with 80% of analysts rating the stock a hold and short interest comprising 23% of the float.  However, with the street looking for 22% EPS growth in FY15, we believe this is a prudent call.  At 35x NTM EPS, the stock trades at a substantial premium to the group, which is trading closer to 22x.  To its credit, BNNY is showing significantly stronger top line growth than its peers; however, we have legitimate concerns with the company’s ability to manage EPS.

 

 

Key issues include:

  • Decelerating sales trends in FY15
  • Margin pressure in FY15
  • Management’s ability to manage a significant growth opportunity
  • The dilutive nature of the new snack manufacturing plant
  • Aggressive FY15 EPS estimates
  • Balance sheet concerns

 

We will hold a brief conference call on Thursday, April 10 at 11:00am to run through our thesis and field questions.  

 

 

 

Howard Penney

Managing Director

 

Fred Masotta

Analyst


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