Freedom makes case for shares of organic food co. SunOpta to double in initiation

Shares of SunOpta, a small-cap producer of plant-based beverages, have the potential to more than double versus current levels, according to a Freedom Broker initiation report seen by Oninvest. SunOpta already dominates the milk-alternative market, and demand for its fruit snacks is outstripping supply, the analysts noted. However, rising competition from large corporations, like Danone, could pressure SunOpta’s pricing and market share, they caution.

Freedom Broker has initiated on SunOpta shares with a “buy” rating and a target price of $7.50 per share. At the close of trading on Friday, December 5, one SunOpta share cost $3.61, implying nearly 108% upside.

In early trading today, December 8, SunOpta shares inched downward about 0.7%. Year to date, they are down 53%.

SunOpta is a leading producer of plant-based beverages and fruit snacks, Freedom writes. The company controls about 70% of the U.S. market for long-life plant-based milk, and its fruit-snacks division is struggling to keep up with demand, analysts note. Against this backdrop, SunOpta plans to invest $35 million in a new beverage line and $25 million to expand its snacks business, which is expected to support growth through the end of 2028.

The company has also made progress on key profitability indicators, Freedom adds. In the third quarter, SunOpta reported a 17% year-over-year increase in revenue to $205 million, while adjusted EBITDA rose 13% to $23.6 million.

The planned capacity expansion, a recovery in business margins, and a reduction in debt (which stood at $263.6 million at the end of September) may support further growth in the company’s shares, the analysts believe.

SunOpta’s outlook could be affected by weakening consumer interest in plant-based milk substitutes, as well as potential challenges in packaging and trucking, Freedom writes.

Analysts also finger growing competitive pressure from large corporations such as Danone, as well as retailers’ private-label brands, which could undermine SunOpta’s pricing and market position.

Freedom’s valuation is the most conservative on Wall Street, according to MarketWatch data. The average target price for SunOpta shares is $7.90 per share, which is 119% higher than current quotes. In total, eight analysts cover the company, and all have a “buy” rating.