SOVO - Sovos Brands lands Buy rating from Needham with Rao's expected to be a billion-dollar brand

2023-05-31 11:32:48 ET

Sovos Brands ( NASDAQ: SOVO ) tracked 1.30% higher in morning trading on Wednesday after Needham started off coverage with a Buy rating on the food stock.

Analyst Matt McGinley and team said growth in pasta sauce for Sovos Brands ( SOVO ) coupled with brand extension into adjacent categories provides ample opportunity for Rao's brand growth.

"We expect Rao's to be a $1B brand over the next 3-4 years, representing 75%+ growth off '22 brand revenue of $580mn. While we expect the Rao's brand to generate the majority of Sovos' growth, we think it benefits from operating multiple brands, as allow it to leverage its manufacturing and distribution, and provide cross-selling opportunities that can drive scale efficiencies and push the operating margin higher."

The asset-light model in play at Sovos Brands ( SOVO ) is seen providing strong cash flow generation that the company can use to reduce debt and to fund M&A as opportunities emerge.

Needham assigned a price target on SOVO of $22.50 to rep 20% upside potential. The all-time high for Sovos Brands is $20.58.

More on Sovos Brands

• Sovos Brands earnings call transcript
• Growth metrics on Sovos Brands
• Relative strength index and moving averages
• Seeking Alpha's Quant Rating for Sovos Brands

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