We are adding SunOpta (STKL) to the Best Idea List as a LONG bias. SunOpta, Inc. engages in the sourcing, processing, and packaging of organic and non-genetically modified food and beverage products. It operates through the following segments: Global Ingredients, Plant-Based Foods and Beverages, and Fruit-Based Foods and Beverages. The segment mix is seen in the following chart.
The Global Ingredients segment focuses on the procurement and sale of specialty and organic grains and seeds, raw material ingredients, value-added grain, and cocoa-based ingredients, and organic commodities. The Plant-Based Foods and Beverages segment offers a full line of plant-based beverages and liquid and dry ingredients, as well as broths, teas, and nutritional drinks. Plant based foods have had some of the strongest growth rates during the pandemic, but the category has been strong for several years across multiple categories as seen in the following chart.
The Fruit-Based Foods and Beverages segment offers quick frozen fruit for retail and bulk frozen fruit for food service, and custom fruit preparations for industrial use. Over the past year, under new management, the company has seen a significant improvement in profitability. As seen by the DNKN announcement, there are many legs of growth in the plant base milk category, and STKL is a pure-play on that growth. Other key points:
- Last month Oatly, raised $200M from Blackstone as well as Howard Schultz, Jay-Z, and Oprah, valuing it at $2B and plans to go public next year.
- Oat milk sales increased by 270% YTD through mid-July.
- America's milk drinking habits have been in steady decline, dropping from nearly 250 pounds per capita in 1975 to less than 150 pounds in 2018. The decline has caused two of the largest milk processors, Dean Foods and Borden Dairy, in the U.S. to file for bankruptcy in the past year.
- SunOpta's leverage is high but manageable, and expect better terms by year-end.
